On Friday (December 12), global capital markets experienced a sharp decline, with U.S. stocks, gold, and silver all falling. Later on December 14, cryptocurrencies also saw widespread drops.
Two major uncertainties are weighing on the markets. First, although the Federal Reserve has already cut rates, Fed Chair Jerome Powell's stance on whether there will be a rate cut in January remains unclear. Some analysts believe the Fed's decisions are increasingly data-dependent, adding to the uncertainty about a January rate cut. Notably, former Fed Governor Kevin Warsh's chances of becoming the next Fed Chair have surged after receiving praise from U.S. President Donald Trump and support from JPMorgan Chase CEO Jamie Dimon, one of Wall Street's most influential figures. As of Saturday (December 13), data from prediction markets Kalshi and Polymarket showed Warsh's nomination probability rising by 17 and 24 percentage points, respectively. However, White House Chief Economic Advisor Kevin Hassett remains the top contender, with nomination probabilities above 50% in both markets.
Regarding rate cut expectations, while many institutions predict a January rate cut, CME's FedWatch Tool shows only a 24.4% probability of a 25-basis-point cut in January 2026, with a 75.69% chance of rates holding steady. The probability of a cumulative 25-basis-point cut by March stands at 41.4%, while unchanged rates have a 50.5% likelihood, and a 50-basis-point cut has an 8.1% chance.
Additionally, as the year's final wave of central bank decisions approaches, the trend of developed economies "hitting the brakes" is becoming clearer. Major global central banks are diverging in their policy paths, introducing new uncertainties for next year's markets. On December 18 (Thursday), the Bank of England and the European Central Bank will announce their rate decisions, followed by the Bank of Japan on Friday. Central banks in Thailand, Indonesia, Sweden, Norway, Mexico, Russia, and Hungary will also release their latest rate decisions. Notably, markets widely expect the Bank of Japan to deliver a landmark rate hike on Friday, marking a stark contrast to the global trend of rate cuts over the past year.
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