The Federal Reserve has cut interest rates by 25 basis points in December, in line with market expectations, with one additional rate cut anticipated next year. Fed officials have expressed greater optimism about economic growth and inflation, maintaining unemployment rate projections consistent with September's estimates. Fed Chair Jerome Powell emphasized that the focus remains on mitigating downside risks to employment. This latest rate cut is viewed as a "preemptive measure," with further easing likely to face higher thresholds as policy rates return to neutral levels. However, tight silver supply dynamics and positive market sentiment continue to support silver prices, which may remain firm in the near term, though risks of a sentiment-driven correction persist.
The Fed proceeded with its expected rate cut and expanded its balance sheet, marking a cumulative 75-basis-point reduction this year. The decision saw dissent from three policymakers, reflecting growing internal divisions. Additionally, the Fed began purchasing short-term U.S. Treasuries in December to ensure ample reserve supply, exceeding prior expectations in timing and scale. The dot plot maintains guidance for one rate cut each in 2026 and 2027. Powell’s remarks leaned dovish, leaving room for a potential January rate cut while signaling a pause unless employment or economic conditions deviate from baseline projections. The Fed also ruled out rate hikes for now.
Economic projections were revised upward for GDP growth this year and the next three years, with a slight 0.1-percentage-point downward adjustment to the 2027 unemployment forecast. Inflation expectations were further lowered, with a return to 2% targeted by 2028. The Fed’s outlook suggests confidence in a "soft landing" for the U.S. economy. Under Powell’s tenure, policy is expected to remain steady until a new chair takes office, though leadership uncertainty could introduce dovish signals later.
Silver prices recently hit record highs, driven by Fed rate-cut expectations and bullish sentiment. Silver’s dual role as both a financial and industrial commodity underpins its strength. Supply shortages persist globally, with a projected 2025 deficit of 2,950 tons. U.S. tariffs and silver’s designation as a critical mineral have spurred imports, while inventory drawdowns in London were alleviated by inflows from China and the U.S. Tight physical supply has triggered squeeze signals, potentially fueling further price gains.
Shanghai silver inventories rebounded after declines, but COMEX stocks fell sharply to 14,200 tons from 16,500 in early October. Near-term prices may stay elevated, but volatility risks loom if December COMEX deliveries disappoint or supply tightness eases.
The gold-silver ratio has narrowed to around 66, nearing 2023 lows. While both metals typically move in tandem, silver’s industrial demand (60% of total) makes it more sensitive to economic cycles than gold (10% industrial use). Gold’s safe-haven appeal dominates during uncertainty, while silver outperforms in recoveries. The current ratio compression reflects silver’s stronger rally amid Fed easing and robust demand, attracting both defensive and momentum capital.
With COMEX silver deliveries ongoing through December—a historically active month—high volatility may persist amid supply constraints. Traders should monitor ratio-rebound opportunities.
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