Central Banks: The End of a Cycle and the Beginning of Uncertainty

A Fed Nearing Neutrality but Far from Absolute Consensus

The December 2025 FOMC meeting confirmed the trajectory of US monetary policy without major surprises. The Federal Reserve lowered its benchmark rates by an additional 25 basis points, bringing them to a range of 3.50% to 3.75%. This move totals a 75 basis point easing for the entire year, following cuts in September and October.

However, this decision does not signify a clearly accommodative turn. As Thomas Giudici, head of bond management, explains, the Fed is primarily aiming to « stay as close to neutrality as possible » in a still-cloudy economic environment. By slightly revising upward its growth forecasts for 2025 and 2026, while marginally lowering its inflation expectations, Jerome Powell has confirmed that monetary policy is now correctly calibrated.

This stance translates to a deliberate return to a « wait and see » approach. With inflation no longer the main concern, the FOMC's attention is shifting to the labor market, focusing specifically on unemployment trends, which Fed Chair Powell believes might be overestimated by some recent statistics.

Internal Divisions and Increasingly Tense Political Climate

Behind this apparent consensus, the fault lines are quite real. During this meeting, three FOMC members opposed the final decision: two favored maintaining the status quo, while one advocated for a more significant decrease of 50 basis points. Such a level of dissent is rare and had not been observed since 2019, highlighting the complexity of the current monetary situation.

Adding to these internal debates is an increasingly significant political dimension. The anticipated renewal of nearly all regional bank presidents' terms by the Fed Board has been perceived as an attempt at institutional lock-in, at a time when the central bank's independence might be compromised. Speculations surrounding a possible dismissal of Lisa Cook and the appointment of a successor aligned with Donald Trump illustrate this growing tension between political power and monetary authority.

In this context, the statements from figures expected to play a key role in the future, like Kevin Hassett, fluctuate between asserting independence and exhibiting ambiguities, given the close ties with the US executive. For the markets, this institutional uncertainty is an additional risk factor, still largely underestimated.

Europe cautious, Japan waiting in the wings

On the European side, the European Central Bank is expected to maintain the status quo in the coming weeks, barring any surprises. However, the positions of some members of the Governing Council, notably Isabel Schnabel, indicate a consistently hawkish bias, despite a less favorable macroeconomic environment. This stance is questionable given that growth remains fragile and monetary transmission appears uneven within the eurozone.

Lastly, there's the Bank of Japan, the last major monetary player capable of stirring up trouble. Following decades of ultra-accommodative policy, the Japanese institution is gradually returning to the forefront. Even a gradual acceleration of its normalization could reignite volatility in the interest rate and currency markets, with repercussions far beyond the archipelago.

As we approach 2026, the global monetary cycle seems less settled than it appears. While the Fed has charted its path, the balance remains delicate, dependent on political decisions, labor market dynamics, and still-uncertain adjustments from other major central banks. For bond investors, this phase calls for more caution, selectivity, and a keen interpretation of monetary signals.