2025 December Fed Dovish Shift: Global Markets Rise, Nikkei Declines Amid Tech Concerns

This analysis is based on the Wall Street Journal report [1] published on December 12, 2025, detailing global market rises following the Fed’s dovish policy shift. On December 11, 2025, the Fed cut the federal funds rate by 25 basis points (third cut of the year) to 3.50-3.75% and projected one more rate cut in 2026, signaling confidence in a U.S. economic soft landing [3]. The rate cut triggered immediate market reactions: U.S. indices gained (Dow +1.29%, S&P 500 +0.58%, NASDAQ +0.36%), with small-cap stocks (Russell 2000) reaching an all-time high [0][3]. European indices (FTSE +0.49%, DAX +1.00%) followed suit [0]. Rate-sensitive sectors—utilities (+3.59%), basic materials (+2.09%), real estate (+1.69%)—led U.S. sector gains due to reduced borrowing costs [0].

Notably, the Nikkei 225 declined (-1.32%) amid two key tech-related factors: a sharp slide in SoftBank Group (SFTBY), a major AI investor, and broader global tech declines sparked by Oracle’s (ORCL) disappointing earnings and rising AI spending concerns [4][5]. Medium-term, the Fed’s dovish stance may sustain market momentum if inflation and employment goals are balanced, but division within the Fed (3 dissents) and lingering inflation risks (above the 2% target) could create 2026 volatility [3].

1. Fed Policy as Global Market Catalyst
   : The Fed’s rate move had immediate cross-region spillover effects, demonstrating the U.S. central bank’s continued influence on global market sentiment [1][3].
2. Tech Sector Vulnerability
   : Oracle’s earnings highlighted emerging AI spending risks, which cascaded to SoftBank (a major tech investor) and dragged the Nikkei down—showing localized and global tech sector interdependencies [4][5].
3. Rate-Sensitive Sector Disparity
   : Utilities, basic materials, and real estate outperformed tech in the U.S., indicating that lower interest rate expectations disproportionately benefit interest-dependent industries [0].

• Fed Policy Uncertainty
  : The rate cut faced 3 dissents (2 wanted to hold, 1 wanted a 50bp cut), signaling potential future policy shifts [3].
• Inflation Persistence
  : Inflation remains above the Fed’s 2% target, with tariffs cited as a key overshoot driver [3].
• Tech Spending Volatility
  : Oracle’s results raised concerns about unsustainable AI spending, which could weigh on tech stocks if not addressed [5].
• New Fed Leadership
  : 2026 Fed leadership changes may alter policy direction, requiring ongoing monitoring [3].

• Rate-Sensitive Sectors
  : Lower interest rate outlooks could support continued growth in utilities, basic materials, and real estate [0].
• Soft Landing Potential
  : The Fed’s confidence in a soft landing may sustain investor optimism if economic data aligns with projections [3].

Key data points from the analysis include:

• Fed funds rate: 3.50-3.75% (after 25bp cut) [3]
• 2026 Fed rate cut projections: 1 (Fed) vs. 2 (market pricing) [3]
• 2025 PCE inflation projection: 2.9%; 2026: 2.4% [2]
• 2025 GDP projection: 1.7%; 2026: 2.3% [2]
• U.S. best-performing sector: Utilities (+3.59%) [0]
• Nikkei 225 decline: -1.32% (driven by SoftBank and Oracle concerns) [0][4][5]

The market rise is based on Fed policy expectations, not concrete economic outcomes. A reversal in Fed stance or unexpected data could trigger volatility.