Geopolitical Developments Put Pressure on Fed's Plans for Rate Reductions

The Federal Reserve is expected to continue lowering interest rates as the pace of consumer price increases slows, creating more room for monetary policy adjustments. Although inflation remains elevated, its growth is moderating, increasing calls for the central bank to bolster a labor market that is beginning to show weakness. In September 2025, officials reduced the benchmark rate by 25 basis points to a range of 4-4.25%. According to the CME FedWatch tool, there is now a 98.9% chance that another 25-basis-point cut will occur at the October 29 meeting, as highlighted in a

.

This shift in policy comes after a year of elevated rates that drove money market fund (MMF) assets to an all-time high of $7.39 trillion, as investors sought safety amid economic uncertainty. However, with Treasury bill yields forecasted to fall below 4% by the end of 2026, MMFs could face annual income declines of $100-140 billion. This could trigger an estimated $739 billion migration into riskier investments such as equities and bonds, according to a

. Past events, like the $500 billion shift in 2009, indicate that such liquidity could drive stock market gains and narrow credit spreads.

Bitcoin is also set to gain from these developments. In 2025, spot ETFs for the digital currency attracted $26 billion, with BlackRock’s IBIT alone bringing in $3.5 billion in early October. Some analysts believe that even a 5% shift of MMF assets could propel

to between $280,000 and $350,000, though bonds are likely to absorb most of the initial outflows, as the analysis points out. The cryptocurrency’s role as a hedge against scarcity is becoming more attractive as expectations for prolonged low interest rates grow.

Although the Fed is focused on managing inflation and labor market risks, external developments add complexity. Former President Donald Trump’s proposal for 100% tariffs on Chinese goods and new sanctions on Russian oil companies highlight geopolitical tensions that could stoke inflation again, according to an

. Strategists at J.P. Morgan warn that the Fed might halt rate reductions in early 2025 to evaluate the impact of Trump’s policies, a view that contrasts with the general expectation of ongoing easing, as mentioned in a .

Central banks worldwide are facing similar dilemmas. Russia recently lowered its key rate by 50 basis points to 16.5% amid sluggish growth and revised inflation projections of 4-5% for 2026, according to

, while Brazil’s central bank is postponing rate cuts due to increased government spending and persistent inflation, as outlined in a . These actions underscore the challenge of encouraging economic expansion while keeping inflation in check in a volatile global environment.

As the Fed considers its next steps, investors are closely watching the December meeting, where another rate cut could reinforce a more accommodative stance for 2026. However, with inflation still above target and geopolitical uncertainties persisting, the central bank’s ability to interpret conflicting economic signals will be crucial for maintaining its reputation as a stabilizing force.

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