US Fed rate cut: What does it means for the markets in 2026?

The Fed cut rates by 25 bps in its last meeting of the year and announced a return to balance sheet expansion to stabilise liquidity. The latter is an operational consequence and not a policy pivot. We expect US Treasury yields to stay rangebound and move broadly sideways. Despite internal divisions, most policymakers expect one more cut next year, while we foresee two additional reductions in 2026. 

Apart from cutting rates, the Fed surprised markets by restarting balance sheet expansion just weeks after ending quantitative tightening. This isn’t a new stimulus program but a technical step to keep enough cash in the system for smooth market operations. Liquidity has dropped from “abundant” to “ample,” so the Fed will buy about $40 billion in short-term Treasuries in December and adjust as needed. These moves aim to stabilise short-term funding, not push long-term yields lower. Overall, US Treasury yields are expected to stay broadly unchanged.

Number of the week: 3.50%

European Central Bank: Why have rates remained unchanged?

The ECB is expected to keep monetary policy unchanged as inflation hovers near 2% and risks remain balanced. The eurozone economy is performing better than expected as a whole and the economic slump that had been feared following the introduction of US tariffs has not materialised. Weak export activity is easing wage pressures and thus limiting the risks of a rise in inflation as well.

At the same time, the downside risks to inflation, which would argue for lower interest rates, have also diminished. The appreciation of the euro at the beginning of the year has come to a halt and deflationary pressure from Chinese imports remains limited to imported goods. We expect no change in interest rates from the ECB and little indication of a change in monetary policy in the coming months.

Swiss National Bank: Stability amid low inflation and modest growth  

The SNB Governing Board’s decision to keep its policy rate unchanged at 0.0% came as no surprise. The SNB continues to view its monetary policy as appropriately expansionary and does not see medium-term price stability at risk. We share this assessment and do not expect a deflationary trend that would warrant further rate cuts. Accordingly, we expect the SNB to maintain its policy rate at 0.0% throughout 2026.

According to the SNB, its expansionary policy and expected wage growth of around 1% next year should support inflation over the medium term. Thanks to the reduction in US tariffs, the SNB sees a slight improvement in the economic outlook but still expects subdued growth of around 1% next year and a modest rise in unemployment. Developments in the foreign exchange market were barely mentioned, apart from reaffirming that the SNB remains willing to be active in the foreign exchange market if necessary. 

Why does gold remain a strong hedge for 2026?

Gold and silver have been the top-performing assets this year, rising over 60% and significantly outperforming global equity markets. As a result, many investors may feel hesitant to establish new positions or increase exposure to these metals despite their strong performance. However, we believe gold remains a top hedge for 2026. This is because with central banks prioritising stability this leaves uncertainty in the markets, and gold offers protection against inflation risks and liquidity shifts.

When comparing gold and silver to the S&P 500, gold is approaching levels above its 2020 highs relative to the index, while silver has already surpassed its previous peaks. Investors may overlook the significance of such sustained breakouts after prolonged consolidation, but it is worth recalling that the post-2011 period marked a continuous downward trend. This suggests limited resistance above the 2020/2015 highs in both metal-to-equity ratios. Based on point-and-figure projections, gold could reach USD 5,400 and silver USD 83. Gold equities are now breaking out of their long-standing relative consolidation pattern and appear poised to outperform physical gold in the coming phase. 

What does this mean for investors?

To put 2025 in a nutshell, this has been a year of regime transition as well as outright shock. The ‘everything bear market’ many feared never arrived. Instead, we saw a slow loss of US exceptionalism, with leadership gradually broadening beyond the mega-cap tech complex, even as AI remained the dominant equity story. Bonds finally started to offer income again, but with frequent repricings. Real assets, from infrastructure to precious metals, moved from niche diversifier to third pillar for global investors. And geopolitics, from Ukraine to the Middle East and back to trade tensions, kept risk premia elevated without fully derailing the cycle. In short: 2025 tested convictions more but benefitted capital.

For investors, the final weeks are about fine-tuning rather than big directional calls. Diverging central bank paths argue for broad global diversification, disciplined duration, and some dry powder. At the same time, the case for real assets remains intact, with gold and silver remaining attractive hedges, and select technology – especially in AI hardware and edge computing – retaining structural appeal.