Policy Easing Dominates Market Rhythm: Divergent Patterns in U.S. Economy and Markets in December

In December 2025, the U.S. economy and financial markets exhibited distinct divergent characteristics driven by adjustments in monetary policy. The Federal Reserve's third interest rate cut of the year, combined with an unexpected resumption of balance sheet expansion, injected strong liquidity into the capital market, driving volatile gains in U.S. stocks, gold and other assets; however, the momentum of the real economy continued to weaken, with the growth rate of business activities falling to a six-month low, new orders in manufacturing and services growing weakly, and the structural contradictions under the expectation of an economic "soft landing" becoming increasingly prominent. The game between policy easing and economic slowdown has become the core main line running through the U.S. economic and market trends this month.

Monetary policy adjustment has become a key variable reshaping the market pattern this month. On December 10th (local time), the Federal Reserve's monetary policy meeting cut the target range of the federal funds rate by 25 basis points to 3.5%-3.75% as scheduled, with a cumulative reduction of 75 basis points during the year and a total cut of 175 basis points in this easing cycle. More importantly, the meeting announced the launch of a short-term Treasury bond purchase program starting from December 12th, with an initial monthly purchase scale of 40 billion US dollars and a subsequent stabilization at 20-25 billion US dollars, marking that the Federal Reserve officially resumed balance sheet expansion only 11 days after the end of balance sheet reduction, alleviating the pressure on the banking system through liquidity injection.

It is worth noting that there were significant differences in this policy resolution, with 3 out of 12 voting committee members casting dissenting votes, the highest number since 2019. Among them, some officials advocated a larger rate cut, while others insisted on maintaining the current interest rate. This divergence essentially reflects different trade-offs between inflation and employment risks. The dot plot shows that Federal Reserve officials have huge differences in their predictions for the 2026 policy path. Although the official median forecast maintains a cautious guidance of only one rate cut next year, the market has captured signals of the continuation of the easing cycle.

The capital market responded strongly to the easing policy, with various assets showing a resonant upward trend. Supported by policy dividends and performance, the U.S. stock market fluctuated higher. The Nasdaq 100 Index opened at 25,232.75 points at the beginning of the month, and although it corrected in the middle of the month, it still closed at a high level of 24,647.61 points on December 17th, with technology stocks as the core driving force. The better-than-expected financial reports of leading enterprises such as Micron Technology further boosted market confidence and drove the strength of the semiconductor sector. In the bond market, expectations of interest rate cuts and balance sheet expansion pushed U.S. Treasury yields lower. The 10-year U.S. Treasury yield fell by 15 basis points to 2.87% after the meeting, providing a favorable environment for the stock and gold markets.

The gold market has become one of the biggest beneficiaries of policy easing. The Federal Reserve's "interest rate cut + balance sheet expansion" combination has significantly reduced the holding cost of gold, while strengthening safe-haven demand, driving the continuous rise of gold prices. As of December 19th, the spot price of London gold was reported at 4,346.82 US dollars per ounce, an increase of nearly 100 US dollars from the closing price on the day of the meeting, setting a new high for the year; domestic gold T+D also climbed to 978.2 yuan per gram synchronously. The position of the world's largest gold ETF continued to grow, with speculative funds and institutional allocation funds forming a joint force. The precious metals sector also strengthened synchronously, with London spot silver hitting a new all-time high, reaching an intraday high of 62.884 US dollars per ounce, reflecting the market's strong response to liquidity easing.

In sharp contrast to the prosperity of the capital market, the momentum of the U.S. real economy continued to slow down. Data released by S&P Global on December 16th showed that the initial value of the U.S. composite PMI in December fell from 54.2 in November to 53.0, the lowest level since June this year. Although it is still in the expansion range, the downward trend of growth rate is clear. By industry, the services PMI, which accounts for two-thirds of economic output, fell to 52.9, and the manufacturing PMI fell to 51.8, both lower than market expectations and hitting multi-month lows. More importantly, the growth rate of new business was the smallest in nearly 20 months, and new commodity orders fell for the first time in a year, indicating that corporate demand was under obvious pressure on the eve of the holiday season.

Behind the economic slowdown is the combined impact of the cumulative effect of high interest rates and shrinking demand. The labor market showed a mild deterioration trend, with the unemployment rate rising to a four-year high of 4.4%. Under the dual pressure of costs and demand, enterprises reduced recruitment, and private sector jobs even saw a net decrease in November. Residents' consumption capacity has also been eroded, with low- and middle-income groups becoming more cautious in consumption. Retail enterprises are facing the dual squeeze of costs and demand, and the support of the stock market boom for a small number of wealthy consumers cannot change the overall trend of consumption slowdown. In addition, research by the Federal Reserve Bank of San Francisco shows that tariff increases may further suppress demand and reduce economic growth, adding uncertainty to the subsequent economic trend.

Looking ahead to the end of the month and the beginning of 2026, the core contradiction between the U.S. economy and the market will still be the game between policy easing and economic fundamentals. The uncertainty of Federal Reserve policy will continue to disturb the market. If subsequent economic data weakens further, it may force the policy to accelerate the easing pace; if inflation falls less than expected, it may trigger concerns about policy reversal. For investors, liquidity easing is still the core driving force of the market in the short term. High-growth sectors such as technology stocks and safe-haven assets such as gold may continue to be favored by funds, but they need to be wary of the risk of earnings downward revisions caused by an unexpected economic downturn. Amid the two-way pull between policy and the economy, the U.S. economy and markets are moving towards a more complex stage of differentiation.