Please find an excerpt from our December 2025 Newsletter below.

Interest Rates, Inflation, and Central Banks

Towards the end of last quarter, we saw the Federal Reserve cut interest rates to 4%-4.25% and since then, in October and December’s meetings, there were two more 25 basis point cuts, bringing the rates down to their current level of 3.50% to 3.75%. These decisions were not unanimous, though the stock markets have largely cheered the direction of rates. As a backdrop, US inflation remains elevated in the range of about 2.7%-3% with a target rate of 2%. US unemployment rose to 4.6%, the highest rate since 2021 (but still historically quite low). US GDP growth in the fourth quarter came in at a very strong 4.3% after a 3.8% growth rate in the second quarter and a 0.6% decrease in the first quarter.

After the new year, the markets are likely to be more interested in who the new Fed Chair will be as Jerome Powell’s term as Chairman will be expiring in May 2026 (with his term on the board expiring on 2028). There is, of course, a lot of concern as to how much the President will be influencing the next Fed Chairman, but investors and the President should remember that it is the Federal Open Market Committee’s (FOMC) 12 voting members who set rates, by majority. The Fed Chair can’t ignore the majority on the FOMC and set rates on their own.

The leading candidates to replace Chairman Powell are Kevin Warsh and Kevin Hasset though also being considered is current Fed Governor Christopher Waller. My personal choice from these 3 would be Chrisopher Waller, I think he is the most qualified and least political, and I have been happy to see that he is still “in the running” despite not having a close relationship with President Trump. Investors though will likely cheer regardless of who is chosen, as they generally dislike uncertainty more than anything else. 2026 will be an important election year with the mid-terms only 10 months away. If the Republicans lose both the house and the Senate, we can expect a lot of gridlock and actions meant to stifle the President, who has had more of a free reign during the first part of this presidency.

Elsewhere around the world, the ECB this quarter left rates unchanged in the range of 2%-2.15%, the Bank of England cut rates in December by .25% to 3.75% and the Bank of Japan raised rates to about .75%, its highest rates in almost 30 years.

Globally, overall interest rates appear accommodative and getting slightly more so as inflation continues to slowly moderate. Central bank actions, other than the Fed, which is almost always in the news, have largely moved out of the headlines, which generally indicates a time of calm and lower financial worries.

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Samples from our previous newsletters can be found below.