As December unfolds, major central banks worldwide are preparing for their final interest rate decisions of the year. The Reserve Bank of Australia (RBA) will kick off the series on Tuesday, December 9, with expectations largely favoring a hold on rates. The U.S. Federal Reserve follows on December 10, likely implementing its third rate cut this year while adopting a hawkish tone to address inflation risks. On December 11, the Swiss National Bank (SNB), already at zero rates, is anticipated to maintain its stance and signal a high threshold for negative rates.
The Bank of England (BoE) and the European Central Bank (ECB) will announce their decisions on Thursday, December 18. While the BoE's move remains uncertain, the ECB is widely expected to stand pat. Japan’s central bank concludes the cycle on December 19, with speculation mounting over a potential rate hike.
**Fed Grapples with Dual Challenges** The Fed remains in focus as it navigates persistent inflation and a weakening labor market. After holding steady for most of 2025, the Fed cut rates twice—in September and October—bringing the benchmark to 3.75%-4%. A third cut in December seems probable, though policymakers may balance it with hawkish inflation warnings.
Inflation, which peaked at 9% in June 2022, had cooled to 2.3% after aggressive hikes pushed rates to 5.25%-5.5%. However, a recent uptick to nearly 3% has reignited debates: Does stubbornly high inflation or a faltering job market pose greater risks? Complicating matters, the Fed faces data limitations due to a government shutdown, forcing reliance on sparse economic indicators.
Despite Chair Jerome Powell’s October remark that a third cut wasn’t assured, several officials now advocate for further easing. New York Fed President John Williams hinted at adjustments to approach a "neutral" policy stance, emphasizing the need to curb inflation without destabilizing employment. Markets interpret this as tacit support for a December cut. Yet, inflation concerns linger, keeping the bar high for future reductions.
**Diverging Paths Among Central Banks** While the Fed leans toward easing, the RBA, SNB, and ECB are likely to hold. Australia’s GDP grew 2.1% year-on-year—its fastest pace in two years—while October inflation hit 3.8%, well above the RBA’s 2%-3% target. Similarly, the ECB is expected to extend its pause.
Switzerland, despite weak data, is unlikely to cut further. Nomura predicts the SNB will maintain its "high threshold" for negative rates until 2026, with BNP Paribas forecasting no changes until late 2027.
The BoE presents more uncertainty. Some analysts predict a December cut amid deteriorating employment, while others argue for waiting until 2026.
In Japan, Governor Kazuo Ueda recently hinted at a December rate hike, citing economic progress. With the yen depreciating and bond yields soaring—10-year JGBs hit 2007 highs—a move could amplify market volatility.
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