December 11, 2025
The Federal Reserve’s final meeting of 2025 was a masterclass in obfuscation and monetary malfeasance. Chair Jerome Powell, with his trademark calm delivery, announced yet another 25-basis point cut, bringing the federal funds rate down to 3.5–3.75%. This marks the third consecutive cut since September, a cumulative 75 bps reduction in just three months. Powell himself admitted, “the fed funds rate is now within a broad range of estimates of its neutral value and we are well positioned to wait to see how the economy evolves”. Translation: the Fed has pushed policy to the high end of neutral, but refuses to admit it is already stoking inflationary flames.
Yet buried beneath the headline cut was the real story. The FOMC declared that reserve balances have “declined to an ample level” and therefore the desk will purchase Treasury bills to ensure reserves remain ample. In plain English, Powell has launched a tacit QE program of $40 billion per month. This is not about neutral policy—it is about stealth monetization. Powell has proven himself one of the greatest counterfeiters in Fed history. People need to know that Powell is worried about reducing debt service payments for the Treasury and keeping banks liquid. The middle class be damned.
The dissent within the committee underscores the confusion. Governor Stephen Miran wanted a 50-bps cut, while Austan Goolsbee and Jeffrey Schmid voted for no change. Three dissents—the most in six years—signal a fractured Fed, unable to reconcile its dual mandate with reality. GDP is rising at an annual rate above 3%, inflation has been above target for nearly five years, and yet Powell insists on further loosening. If inflation can run above 2% for half a decade, why the rush to cut rates before it even dips below target? The Fed’s credibility is eroded by its asymmetric tolerance—always erring on the side of higher inflation, never restraint.
Markets now face a dangerous void. Powell’s rate cut and tacit QE program are today’s reality, but his tenure ends on May 15, 2026, with Trump’s appointee taking over at the June 17 meeting. Between now and then, investors must navigate a policy vacuum where Powell’s QE may either fail to keep credit markets liquid or overshoot, pushing inflation higher and wreaking havoc on the long end of the yield curve.
The economic backdrop only sharpens the contradictions. According to Charles Schwab, the rejection rate for all types of credit—mortgage, credit card, auto—has surged to an all-time high of 24.8%. Meanwhile, Challenger, Grey & Christmas reports layoff announcements topping 1.1 million this year, the worst since the pandemic year 2020. These are not signs of an economy in need of looser policy—they are signs of structural weakness that monetary tinkering cannot fix. Cutting rates while credit is being denied and layoffs mount is akin to pouring gasoline on a fire and calling it water.
Powell’s defenders argue that the Fed must balance risks to employment and inflation. But the Fed’s own projections show GDP growth above 3% and inflation still elevated. The labor market is cooling, yes, but not collapsing. The unemployment rate sits at 4.4%, hardly catastrophic. The Fed’s obsession with preemptive easing reveals its true bias: it is not a neutral arbiter of stability, but a political actor desperate to prop up asset prices to boost Powell’s legacy.
The implications for investors are stark. Powell’s $40 billion QE may temporarily lubricate credit markets, but it risks reigniting inflation. If inflation expectations rise, the yield curve could explode violently, undermining long-term Treasuries and destabilizing equities. Conversely, if QE fails to offset tightening credit conditions, liquidity could dry up, exposing overleveraged sectors to collapse. Either outcome is chaos.
I have long warned that the Fed’s addiction to monetary manipulation creates cycles of boom and bust. Today’s meeting confirms that Powell is willing to sacrifice credibility for expediency. He cuts rates into strength, launches QE under cover of reserve management, and leaves markets to guess what comes next. As Powell himself said, “monetary policy is not on a preset course, and we will make our decisions on a meeting by meeting basis”. That is not guidance—it is abdication.
Heading into 2026, the two metrics to monitor are clear:
- Credit market liquidity—will Powell’s QE be enough to prop up the tenuous credit bubble?
- Inflation trajectory—will $40 billion per month push prices yet higher, causing chaos in the bond market?
For now, prudence dictates remaining net long, but with hedges in place. The Fed has once again chosen inflation over discipline, and liquidity over credibility. Investors must prepare for volatility, because Powell’s counterfeit calm is masking a storm.
Michael Pento is the President and Founder of Pento Portfolio Strategies, produces the weekly podcast called, “The Mid-week Reality Check” and Author of the book “The Coming Bond Market Collapse.”