A Dovish Hawkish Rate Cut

Market Commentary – December 15, 2025

The FOMC (Federal Open Market Committee) concluded its regular monetary policy meeting last Wednesday and announced a highly anticipated and eagerly awaited rate cut.

It agreed to cut the Federal Funds rate cut by 25 bps to 3.50%–3.75%. But the Committee is not expecting many more interest rate cuts into 2026 – this was the hawkish side of their announcement and action.

Separately, the Fed ended Quantitative Tightening (QT) on December 1, halting the runoff of securities from its balance sheet – a process that had been draining liquidity from financial markets. At the FOMC meeting, the Fed also signaled a willingness to provide additional liquidity by purchasing Treasury bills, reflecting seasonal funding pressures, which tend to put upward pressure on interest rates as businesses wind down activity toward year-end.

In addition, seasonal tax payments from December through April also tend to put upward pressure on interest rates as demand for capital rises. To ease this pressure and prevent rates from rising as liquidity tightens, the Fed announced plans to purchase Treasury bills over the next 6 months, with estimates ranging from $500 billion to $550 billion, to maintain what it calls an “ample reserves regime.”

While the Fed has stated that this program does not constitute Quantitative Easing (QE), some market observers are calling it “QE-lite.” This was the dovish side of the FOMC meeting.

The equity market responded positively, but a rally was eventually stolen by the market’s disappointment in the Grinchy earnings announcements from Oracle (ORCL) and Broadcom (AVGO).

Productivity A Key Measure For Future Economic Growth & Inflation

There was another notable insight from the Fed meeting last week. Near the end of his press conference on Wednesday, Fed Chair Jerome Powell remarked, “I never thought I would see a time when we had, five, six years of 2% productivity growth. We are definitely seeing higher productivity.” Average nonfarm productivity from 1Q2019 Q1to 2Q2025 (the most recent figure) has averaged 2.05%. Powell indicated that he thought part of the more recent gains might be attributable to artificial intelligence (AI) and that he expected more to come; this is reminiscent of Alan Greenspan’s remark in 1998 that the U.S. was experiencing a “once-in-a-century acceleration of innovation.” This would be the second such event in less than half a century, possibly a larger gain in productivity than in the 1990s. Gains in productivity historically deliver higher corporate profits, higher wages and salaries, higher asset prices and lower inflation.