Fed December 2025 Rate Cut Expectations: AI Investment Impact & Market Reactions

The Federal Reserve’s dovish shift, led by San Francisco Fed President Mary Daly, supports a December 2025 rate cut due to labor market weakness [1]. This aligns with other policymakers like Waller and Williams [2]. The CME FedWatch Tool shows an 81% probability of a cut, up from 40% the previous week [3][4]. On the event date (Nov 24, 2025), the NASDAQ (AI/tech-heavy) rose 1.73%, outperforming the S&P500 (1.03%) and Dow Jones (0.17%) [0], indicating investor preference for growth stocks amid rate cut expectations.

1. Tech Sector Outperformance
   : NASDAQ’s rally suggests AI investments are expected to benefit from lower rates, as AI companies rely on cheap capital [0].
2. Policy Consensus
   : The 81% probability reflects market consensus, implying the cut is largely priced in [3].
3. Currency Impact
   : The USD Index fell below 99.50, which may help export-oriented tech companies [1].

• Risks
  : Unconfirmed concerns about an AI bubble being propped up by rate cuts [0].
• Opportunities
  : Panic sell-offs (if any) could present buying opportunities for tech stocks [0].
• Currency Risk
  : A weaker USD may impact import costs but benefit exporters [1].

• Rate Cut Probability
  : 81% (CME FedWatch) [3][4].
• Index Performance
  : NASDAQ (+1.73%), S&P500 (+1.03%), Dow (+0.17%) [0].
• Policy Driver
  : Labor market weakness [1][3].