2025 Fed Rate Cut Expectations: UBS Forecasts 25bp Cut With Majority FOMC Support

On December 9, 2025 (EST), UBS Investment Bank’s Jonathan Pingle commented that dissent is normal in Fed rate decisions but expects a large FOMC majority to support a 25-basis-point rate cut on December 10 [1]. This forecast aligns with broad market expectations, but traders are focused on the Fed’s future policy signals rather than the immediate cut. Reuters reported that markets price in 77 basis points of cumulative 2026 easing, while Wall Street banks predict fewer cuts due to lingering inflation and economic resilience [2]. A “hawkish cut” scenario—where the Fed cuts rates but signals caution about future easing—is widely anticipated, reflected in a ~14 basis point jump in 10-year U.S. Treasury yields in December [3].

U.S. equities showed muted gains on December 9: S&P 500 (+0.20%), DJIA (+0.24%), and NASDAQ (+0.03%) [0], reflecting investor anxiety about post-cut communication (e.g., dot plot projections). Rate-sensitive sectors had mixed reactions: financial services (+1.17%) and utilities (+1.12%) led gains (benefiting from reduced funding costs) [0], while real estate (-0.31%) underperformed—likely due to concerns that a hawkish Fed would limit future easing [3]. Healthcare (-1.46%) was the worst-performing sector, with no clear Fed-related catalyst [0].

1. Market Prioritizes Future Signals Over Immediate Cut
   : The modest index gains and mixed sector performance indicate that investors are more focused on the Fed’s 2026 rate projections than the December 10 cut itself.
2. Real Estate Underperformance Defies Traditional Rate Logic
   : Unlike financials and utilities, real estate’s decline suggests that market participants fear a “hawkish cut” could weaken the long-term interest rate benefits typically enjoyed by the sector.
3. Policy Dissent as a Sentiment Indicator
   : Pingle’s reference to “normal dissents” implies that FOMC division is expected, but the number and rationale of dissents could sway market confidence in the Fed’s policy path.

• Hawkish Fed Surprise
  : If Fed Chair Jerome Powell indicates fewer 2026 rate cuts than expected or maintains a strong inflation-fighting tone, equities could sell off [3].
• Policy Division
  : A higher-than-expected number of dissents may erode market confidence in the Fed’s policy consistency.
• Economic Data Disconnect
  : Persistent inflation or unexpected weakness post-cut could create policy uncertainty and volatility.
• Opportunity Window for Rate-Sensitive Sectors
  : A more dovish-than-expected Fed could boost sectors like real estate and utilities, which have been cautious amid hawkish cut expectations.

This analysis synthesizes market reactions and expert forecasts around the upcoming Fed rate decision. Key data points include:

• UBS forecast: 25bp rate cut with majority FOMC support [1]
• U.S. index performance (12/9): S&P 500 (+0.20%), DJIA (+0.24%), NASDAQ (+0.03%) [0]
• Sector highlights: Financials (+1.17%), utilities (+1.12%), real estate (-0.31%) [0]
• Market-implied 2026 easing: 77 basis points [2]
  Decision-makers should monitor the Fed’s dot plot projections, Powell’s press conference, and FOMC dissent details for clarity on future policy direction.

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