Central banks have concluded their final policy meetings for 2025, with policymakers increasingly focused on balancing easing inflation against signs of labour market softness. In our Final Central Bank Update 2025, Chief Investment Officer, Jeff Brummette outlines the Fed’s third consecutive rate cut and Chair Powell’s cautious tone, the Bank of England’s narrowly split decision to ease, and the ECB’s choice to remain on hold. With U.S. and UK rates nearing neutral and central bank influence on markets likely to be more muted, the implications for currencies, bonds, and equities remain important as we head into 2026.
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We’ve just had the last central bank policy meetings of the year. The U.S. Federal Reserve’s Open Market Committee (FOMC) lowered rates by 25 basis points for the third meeting in a row last week. Chair Powell suggested rates were getting closer to neutral but provided little in the way of guidance on the path ahead. He reiterated the Federal Reserve’s commitment to achieving its 2% inflation target, noting that inflation risks remain tilted to the upside while the labour market continues to face downside risks.
The latest U.S. labour market data, released after the FOMC meeting and covering October and November, showed continued softness, with the unemployment rate tick up to 4.6%. Meanwhile, the latest CPI figures show inflation falling to 2.7%. Another rate cut in January cannot be ruled out.
U.S. Inflation Levels
Source: Bloomberg
The Bank of England (BoE) also lowered rates by 25 basis points at their final meeting in a narrow 5-4 vote. Recent labour market data indicates a continued slowdown in hiring, while the latest inflation figures showed a marked improvement with inflation falling to 3.2%.
Governor Andrew Bailey commented that inflation was likely to fall closer to target in the spring of next year, highlighting the recent budget as a factor helping to reduce inflation. He suggested that any future cuts would be finely balanced, as policy is getting closer to a neutral stance.
UK Inflation Levels
Source: Bloomberg
The European Central Bank (ECB) kept rates unchanged at its final meeting of the year. It also revised higher their forecast for both growth and inflation for next year. Barring any unexpected events, it appears the ECB has concluded its rate-cutting cycles and markets are now pricing in the possibility of rate hikes starting in 2027.
Eurozone Inflation Levels
Source: Bloomberg
The Bank of Japan (BoJ) hiked rates for the second time this year, lifting the overnight rate to 0.75%. Governor Ueda expressed confidence that strong wage growth would continue into next year and signalled that further rate hikes would be likely. The yields on Japanese government bonds have been climbing steadily, and at some point this could encourage Japanese investors to repatriate funds. Such a scenario could pose challenges for global bond markets.
Japan Consumer Price Index (CPI)
Source: Bloomberg
We believe that the U.S. Federal Reserve and Bank of England are approaching the end of their rate cutting cycles, unless there are significant further declines in inflation or a sharp rise in unemployment. The European Central Bank is on hold for the foreseeable future, while the Bank of Japan is likely to maintain its steady pace of rate increases into 2026. Overall, we anticipate that central banks’ influence on asset prices will be far more muted than it has been over recent years.
The price and value of investments and any income that might accrue may fall as well as rise and is not guaranteed. You may not get back the amount of your original investment.
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Hear more from the Oakglen experts
Our investment team continue to provide interesting and informative content to help keep you in the loop on recent global news and market trends. See below for some key highlights from around the world which some of the investment management team have recently covered:
Read more:
- December 2025 Investment Summary
Jeff Brummette, Chief Investment Officer
- Q3 2025: Discretionary Investment Management Service Update
Myles Renouf, Senior Investment Manager
- Beyond the Parade: China’s Silent Arsenal, the Doctrine of Unrestricted War and its potential implications on the West
William Lamond, Investment Director and Nigel Smith, Business Developement Executive
You can read other articles from the team on our News & Insights page.
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