The Fed cut the fed funds target range by 0.25% at its December 9–10 meeting, but the minutes showed policymakers are divided on the next step. Most officials still think additional cuts could be appropriate if inflation continues to cool as expected. However, some members argued their outlook supports keeping rates unchanged for a while after the December move, signaling a preference to pause and assess incoming data. Market reaction was muted, and expectations for a near-term cut remained low.
Treasury performance was mixed in the holiday-shortened week. Short-term yields were little changed, while longer-term yields generally rose, pressuring longer-maturity bond prices. Trading volumes were light, which can exaggerate moves without necessarily reflecting a major change in fundamentals. Municipal bonds modestly trailed Treasuries with limited activity. In credit markets, investment-grade corporate bonds posted negative returns, while high-yield bonds outperformed, helped by steadier risk sentiment and below-average trading volumes.
European stocks advanced, with the STOXX Europe 600 reaching a new high and finishing the week up 1.26% in local currency terms. Major indexes also gained, and the UK’s FTSE 100 briefly crossed 10,000 for the first time. In Spain, headline inflation eased to 3.0% in December (from 3.2%), while core inflation held at 2.6%, indicating progress was driven mainly by energy-related components.
