December economic data signaled moderating inflation alongside a continued rebalancing in labor market conditions, with price pressures still running modestly above the Federal Reserve’s longer‑run objective and the unemployment rate dropping to 4.4%. As the data flow normalizes, the Chandler team anticipates additional yield curve steepening as the Federal Reserve gradually guides the policy rate toward a more neutral range. One additional 25 basis point rate cut is likely in the first half of 2026, while U.S. trade and fiscal policy continue to represent important sources of elevated market uncertainty.
2025 concluded with the Federal Reserve’s December FOMC meeting providing a third consecutive 25‑basis‑point rate cut, bringing the target range down to 3.50%–3.75%. Policymakers remain divided on the next steps: four officials project one additional 25‑basis‑point cut in 2026, another four see no further easing, eight anticipate multiple cuts, while three call for a possible rate hike. Chair Jerome Powell emphasized that the Fed is now “well placed to wait and see” how labor market conditions and inflation evolve before making further adjustments.
The US Treasury yield curve steepened in December, as the 2-year Treasury yield dropped 2 basis points to 3.48%, the 5-year Treasury was up 13 basis points to 3.73%, and the 10-year Treasury yield was 15 basis points higher at 4.17%. The spread between the 2-year and 10-year Treasury yield points on the curve was 17 basis points wider from November at +69 basis points at December month-end. The spread between the 2-year Treasury and 10-year Treasury yield one year ago was +33 basis points. The spread between the 3-month and 10-year Treasury yield points on the curve was +54 basis points in December versus +21 basis points in November.