By Christopher Combs, Chief Investment Officer
Silicon Valley Capital Partners December 10, 2025
Executive Summary — Five Takeaways
- The Fed cut rates by 25 bps and paired the move with a tone that was noticeably more accommodating than what markets expected heading into the meeting.
- The Committee upgraded its growth outlook and lowered its inflation forecast, yet chose to keep the longer-term dot plot unchanged.
- Chair Powell described job creation as “extremely weak,” highlighting company anecdotes that AI tools are starting to compress labor needs across industries.
- Powell acknowledged that the underlying payroll trend has tipped negative, a rare admission that labor conditions are deteriorating beneath the surface.
- Kevin Hassett—considered by many to be the likely Fed Chair beginning in 2026—remarked a day earlier that the Fed has “plenty of room” to cut rates, signaling a potentially more aggressive easing path ahead.
Heading into the December meeting, most investors braced for a cautious, almost defensive, message from the Federal Reserve. Inflation had eased, but not convincingly. Labor markets were softening, yet headline numbers still showed stability. The consensus expectation was clear: if the Fed cut rates, it would do so reluctantly and with a hawkish tilt.
That’s not what happened.
Instead, the Federal Reserve delivered a 25 basis-point cut and spoke in a tone that was far more open to future accommodation than anyone anticipated. The meeting marked an important shift in how the Fed is balancing its two mandates. Inflation is still part of the conversation, but it is no longer the central concern. The spotlight has moved to jobs.
- A 25 bp Rate Cut Paired with an Unexpectedly Soft Message
The rate cut itself was not surprising. What stood out was how Chairman Powell framed the decision. Rather than emphasizing risks of cutting too soon or reigniting inflation—language we became used to over the past two years—Powell repeatedly pointed to disinflation progress, cooling wage pressures, and the need to avoid putting unnecessary strain on an already fragile labor market.
In other words, this was not a reluctant cut. It was the beginning of a policy transition away from tightening and toward preserving the expansion.
The market heard the same message. Treasury yields fell quickly, and risk assets rallied as investors concluded that the Fed is now more focused on preventing a downturn than fighting the last mile of inflation.
- Growth Revised Higher, Inflation Lower—Yet the Dot Plot Held Firm
One of the more unusual aspects of this meeting was how the Fed balanced its economic projections with its policy stance.
The Summary of Economic Projections showed:
- Stronger expected GDP growth over the next two years
- Lower inflation forecasts, especially for core PCE
- No change to the longer-term dot plot
This combination tells an important story. The Fed is acknowledging that the economy is on firmer footing than it expected, but it doesn’t see the need to push long-term interest rates higher. Put differently, policymakers believe inflation is easing for the right reasons—productivity improvements, supply normalization, and less wage pressure—not because the economy is weakening.
That alignment gives the Fed more freedom to cut rates if labor conditions worsen.
- Powell’s Most Direct Labor Comments Yet: “Extremely Weak” Job Creation and AI-Driven Compression
The most noteworthy part of Powell’s press conference had nothing to do with interest rates.
It was his candid assessment of the labor market.
Powell referred to job creation as “extremely weak,” language rarely used by a Fed Chair unless the trend is unmistakable. He went further, highlighting stories from businesses that are beginning to:
- Reduce hiring
- Consolidate roles
- Delay replacing departures
- Lean on artificial intelligence for productivity gains
This matters because it suggests that the softness in labor markets is not just cyclical. Powell’s comments indicate the Fed is increasingly aware that AI adoption is reshaping workforce needs—and policymakers will need to cushion that adjustment.
For investors, this acknowledgement signals that the Fed may tolerate easier policy even with steady GDP growth, as long as job softness persists.
- Powell Mentions Negative Running Payroll Pace
Powell also referenced a detail that most investors never hear directly from the Fed: the running payroll trend has turned negative once revisions are taken into account.
This is the type of metric the Fed typically discusses internally, not publicly.
A negative payroll trend often precedes:
- Hiring freezes
- Declines in hours worked
- A drag on household spending
- Early signs of corporate margin protection efforts
By acknowledging this out loud, Powell made it clear that the Fed sees rising risk in the labor market—and is willing to respond before conditions deteriorate further.
This comment alone helps explain why the Fed felt comfortable delivering a cut that many assumed would come with caveats or warnings.
- Kevin Hassett Signals the Potential Path of Fed Policy in 2026
Adding another layer to the story, Kevin Hassett—widely viewed as the front-runner to lead the Federal Reserve once the Chair position turns over in 2026—made pointed remarks just one day before Powell spoke.
Hassett stated that the Federal Reserve has “plenty of room to cut rates.”
In isolation, the comment would be notable. Coming a day before a dovish FOMC meeting, the timing almost underscored a broader theme: the next generation of Fed leadership may be prepared to move even more decisively toward easing.
For markets, this reinforces the notion that:
- The peak in real rates is behind us
- The easing cycle may span multiple years
- Long-duration assets could remain supported well into 2026 and 2027
Hassett’s comments, combined with Powell’s tone, suggest investors should be prepared for a period in which Fed policy is more sensitive to employment risks than to lingering inflation concerns.
Conclusion: The Fed Begins a New Phase
This meeting marked more than a standard policy adjustment. It signaled a shift in how the Federal Reserve is interpreting economic conditions, particularly the labor market. Inflation is easing, growth is holding up, and the structural impact of AI is beginning to influence real-world hiring decisions.
Against this backdrop, the Fed delivered a rate cut that was not reluctant or defensive but rather strategic and forward-looking.
From our perspective at Silicon Valley Capital Partners, the message is clear:
The Fed has entered a new phase—one focused on managing labor-market risk rather than guarding against an inflation resurgence. With potential leadership changes ahead in 2026, the path toward continued easing appears increasingly likely.