Market gives Fed resounding cheer

Making sense of the forces driving global markets

By Jamie McGeever, Reuters Open Interest Markets Columnist 

The dollar sank and Wall Street rallied on Wednesday, with the small cap Russell 2000 index surging to a new high, after the Fed cut interest rates and Chair Jerome Powell offered a positive outlook on the path for growth and inflation. 

More on that below. In my column today, I look at how the global interest rate landscape is suddenly looking a lot more hawkish, and therefore potentially more volatile for investors. The global easing cycle is over. 

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The Fed cut interest rates by 25 basis points on Wednesday, and Chair Jerome Powell said policy is now broadly in neutral territory, meaning policymakers are "well-positioned to wait and see how the economy evolves from here."

Powell was bullish on growth, productivity, and the Fed's ability to get inflation back down to 2% target. Markets liked what they heard, with Wall Street rallying and the Russell 2000 zooming to a new record high. 

China and Brazil released their latest inflation figures on Wednesday, and the signals were mixed. China's consumer inflation popped up to a 21-month high but producer deflation remained entrenched, while consumer inflation in Brazil slowed to its lowest in over a year.

China's yuan edged to a new 14-month high against the dollar, while Brazil's real was one of the world's worst-performing currencies on Wednesday. Chinese bond yields fell, while Brazil's rose. 

Silver is cementing its place as one of the world's best-performing assets of 2025, leaping even higher this week to new records above $60 an ounce. It is now up 110% this year, nearly double gold's rise.

Can it continue? As investors close their books at year end, profit-taking should kick in. But momentum is strong, technicals are positive, and demand/supply dynamics look bullish - the silver market is a fraction of the $30 trillion gold market, and if investors want more exposure to alternative assets, relative demand looks pretty powerful.

The global interest rate landscape is suddenly looking a lot less benign than it did only a few weeks ago, suggesting 2026 could be much more volatile than investors had bargained for.

Comments this week from Reserve Bank of Australia Governor Michele Bullock and European Central Bank Board Member Isabel Schnabel, signaling that their next move could be rate hikes, have brought into sharp focus the hawkish drift across major central banks that has emerged recently.

Bullock's remarks caught markets off guard, while Schnabel's were less surprising. But together, they underscore a much more challenging monetary policy environment next year - borrowing costs are likely to rise.

The common thread is inflation, which remains stubbornly above target in many developed economies, while growth is still mostly solid.

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