December is shaping up to be a pivotal month for the Federal Reserve. As the year-end meeting approaches, uncertainty remains: the Fed is still divided, and while the more dovish stances of some members have already fueled expectations of rate cuts, the latest statistics seem to confirm this scenario.
Signs of a slowdown in the US economy are multiplying: retail sales lagged in September (+0.2% in value, -0.1% in volume), consumer confidence as measured by the Conference Board deteriorated sharply (88.7 in November compared to 94.6 in October), while producer prices are rising slightly. But another crucial event is also on the horizon: Donald Trump is expected to announce Jerome Powell's successor before Christmas. The president indicated on Sunday that he had made his choice. According to several sources, Kevin Hassett, director of the National Economic Council and a close advisor to Donald Trump, is considered the frontrunner. Among the finalists are reportedly Governors Christopher Waller and Michelle Bowman, former Governor Kevin Warsh, and Rick Rieder of BlackRock. Regardless of who is chosen, the tone of the next Fed chairmanship could prove significantly more accommodative. Donald Trump has been explicit: he expects the next Fed chairman to quickly implement rate cuts.
While the Fed will almost certainly lower its key interest rates, the ECB seems determined to extend its pause in December. However, the minutes of its last meeting detail the conditions that could lead it to adjust its monetary policy again. The Governing Council members now believe that inflationary risks are "symmetrical" and would only consider a rate cut in the event of a "sharp and prolonged deviation" from the target. In this context, the November figures confirm the easing of price increases: overall inflation remained stable, at +0.9% in France and +2.3% in Germany. Service prices are slowing slightly in France but remain virtually unchanged in Germany. Inflation is therefore looming below 2% in the eurozone, but this doesn't seem to worry the ECB, which sees it as a temporary phenomenon.
On the one hand, a sharp decline in energy prices appears unlikely, as OPEC+ has maintained its wait-and-see approach. On the other hand, leading growth indicators in the eurozone are improving. Economic activity in Europe should also benefit in the coming quarters from the German fiscal stimulus. The Bundestag has just adopted the 2026 budget, which includes €180 billion in additional debt to finance investments and military spending. Germany is not the only country to have finalized its budget guidelines; the United Kingdom has also presented its budget. The much-anticipated announcement reassured markets: the restoration of a £22 billion buffer demonstrates the government's fiscal responsibility, even if the announced tax increases—on income, dividends, savings, and property—are expected to weigh on growth.
Finally, on the geopolitical front, peace negotiations in Ukraine are continuing. Donald Trump had hoped to finalize a joint agreement between Kyiv and Moscow on a peace plan by Thanksgiving, but discussions will continue this week with the expected visit to Russia of Steve Witkoff, the US negotiator. Vladimir Putin indicated that the draft agreement proposed by Washington and Kyiv could serve as a working basis. At this stage, the likelihood of an agreement remains highly uncertain, even though Ukraine appears increasingly forced to consider a compromise, weakened on the ground and hampered by the erosion of US support.
