Understanding the Fed’s Latest Move
The Federal Reserve wrapped up 2025 with one of its most anticipated policy decisions of the year. As markets widely expected, the Fed lowered interest rates by 0.25 percent, marking the third consecutive meeting with a cut. A quarter-point move may seem modest on its own. But it adds to a broader easing cycle that now totals 1.75 percentage points over the past year and a half. These cumulative cuts are influencing inflation expectations, labor conditions, and borrowing costs as we move into 2026.1
For most of 2025, the Fed kept policy restrictive, holding rates steady until September. Internal meeting minutes revealed growing disagreement among policymakers. The divide was evident in the final vote. Three members of the Federal Open Market Committee dissented from the decision. That’s the highest level of opposition in six years.2
Despite broad anticipation of a cut, the timing underscores just how conflicted the economic backdrop has become. Inflation remains stubbornly above target. Signs of labor market weakness are becoming harder to ignore. That tension is now central to the Fed’s thinking and to how Americans should be positioning for the year ahead.
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A Split Committee and an Uncertain Path Forward
The Fed’s 19-member rate-setting committee entered the meeting deeply divided. Officials have warned that excessive disagreement could erode confidence in the Fed’s policy direction. Especially if future votes come down to a razor-thin margin.
That uncertainty has been compounded by unusual disruptions. A government shutdown delayed key economic data. Policymakers were left without up-to-date information on inflation and employment. In the absence of official reports, the Fed has been forced to rely on private-sector data and older indicators.
The central bank also released its final Summary of Economic Projections for 2025. As of September, the median forecast called for three rate cuts in 2025 and only one in 2026. With Chair Jerome Powell’s term ending in May and a potential leadership change on the horizon, the long-term direction of monetary policy remains very much in flux.
Inflation Remains Elevated as Job Growth Slows
The Federal Reserve operates under a dual mandate: maintain price stability while supporting maximum employment. Right now, those goals are pulling in opposite directions.
Inflation continues to run above the Fed’s 2 percent target. The preferred PCE index showed headline inflation at 2.8 percent and core inflation at 2.9 percent in September. Some projections suggest core inflation could move higher in early 2026 before gradually easing later in the year.4
Meanwhile, the labor market has softened noticeably. The unemployment rate rose to 4.4 percent in September, its highest level in four years. Private payroll data showed job losses in November, particularly among small businesses. Layoff announcements have surged as well. There were more than 1.17 million job cuts reported through November, the highest level for this point in the year since 2020.5
With hiring slowing and layoffs accelerating, labor conditions have become the Fed’s primary concern, increasingly outweighing inflation risks in near-term policy decisions.
A Hawkish Cut, Not a Green Light
Although the Fed lowered rates again, officials signaled caution going forward. This was a hawkish cut. Borrowing costs came down, but policymakers indicated they may pause to reassess once more complete data becomes available.
Markets are currently pricing in limited odds of another cut in January. There is a somewhat higher probability of additional easing by March. For investors, the message is clear: policy uncertainty is likely to persist well into 2026.
Market Implications as Rates Shift
Since late October, financial markets have been driven largely by expectations around Federal Reserve policy. Signals of easing have lifted equities. While even subtle hints of hawkishness have triggered sharp pullbacks.
This sensitivity extends beyond traditional sectors. The AI-driven rally that dominated earlier in the year has become increasingly dependent on low borrowing costs. Major technology firms rely on cheap capital to fund long-term investments.
If rate cuts continue, borrowing and investment could improve, potentially supporting hiring and consumer spending. But that may, in turn, fuel inflation.
What This Environment Means for Gold and Silver
Historically, periods of falling interest rates have been favorable for precious metals. Lower yields reduce the opportunity cost of holding gold and silver. Easing policy often weakens the dollar and reinforces inflation concerns.
Those dynamics have been clearly visible in 2025. Gold prices surged more than 56 percent year over year as rates declined. Notably, gold has never declined during Fed easing cycles when inflation remains above 2 percent. This pattern is attracting long-term investors who want stability while monetary policy remains uncertain.6
Conclusion
As interest rate policy grows less predictable, many Americans are reassessing how exposed their retirement savings are to volatility in stocks, bonds, and currencies. Physical precious metals have long played a role in helping diversify portfolios during periods of economic uncertainty.
If you’re looking to better understand how precious metals or a Gold IRA may fit into a long-term retirement strategy, contact American Hartford Gold today at 800-462-0071.
