On December 11, 2025, the Federal Reserve cut interest rates for the third time by 25 basis points to 3.50%-3.75%. This "loose anchor" did not trigger the global follow-up, but instead formed a hedge with the European Central Bank's "no action" and the Bank of Japan's "countdown to raise interest rates." The divergence of monetary policies among the three major economies is not isolated, but interacts with each other within the linkage framework of capital flows, exchange rate games, and inflation transmission, outlining the core game of the global financial market in 2026.

The core of the Fed's interest rate cut is to respond to "moderate economic expansion but looming risks": slowing employment, rising unemployment and high inflation, so it adopts "gradual easing". It also launched a 30-billion-dollar purchase of treasury bills and cut the reserve interest rate to 3.65% to ensure transmission. The dot plot maintained the expectation of a 25 basis point interest rate cut in 2026 and clarified the boundaries of easing. The 9-3 vote split (one advocated for a 50 basis point cut and two opposed) highlighted the dilemma between inflationary stickiness and cross-border spillovers. As a global liquidity anchor, the Federal Reserve's easing weakens the U.S. dollar's interest rate advantage, becoming a key external incentive for the European Central Bank to stick to interest rates and the Bank of Japan to consider raising interest rates.

Europe refuses to follow easing policy, Japan takes advantage of the situation to raise interest rates

The European Central Bank did not follow suit in cutting interest rates, mainly due to differences in fundamentals: the upward revision of GDP in the third quarter confirmed that economic risks are controllable, inflation is approaching the 2% target in the medium term, and it is necessary to avoid narrowing interest rate differentials that trigger capital outflows and weaken the stability of the euro. Despite internal differences, "no interest rate cut" has become a consensus, maintaining the attractiveness of interest rate spreads by releasing hawkish signals, forming a "static braking" strategy to hedge against the Fed's spillover.

The Fed's easing creates a window period for the Bank of Japan to raise interest rates: Previously, the Japanese yen depreciated by more than 10% due to the inversion of the interest rate differential between Japan and the United States. The Federal Reserve cut interest rates to narrow the interest rate differential. Coupled with Japan's core inflation approaching 2% and the economy withstanding the impact of tariffs, the Bank of Japan ushered in an opportunity to normalize policy. Market expectations for an interest rate hike on December 19 reached 91%, with interest rates expected to rise from 0.5% to 0.75% (a 30-year high). The core goal is to curb the depreciation of the yen and stabilize the 10-year government bond yield approaching 2% (a record high in the long term). In addition, the Federal Reserve's bond purchases increased global demand for safe assets, provided a liquidity buffer for Japan's $75 billion in new bond issuance, and reduced resistance to interest rate hikes.

Policy linkage: capital flow and asset pricing reconstruction

The Federal Reserve's interest rate cuts have reduced the attractiveness of the US dollar, and the Japanese yen continues to strengthen against the US dollar due to expectations of interest rate hikes. The euro has been supported by the European Central Bank's "no interest rate cut" stance. Although it is volatile, it has become more resilient. Currency divergence constrains each other: a stronger yen may force the European Central Bank to maintain its hawkish bias, and excessive weakness in the U.S. dollar may limit the Fed's room for subsequent interest rate cuts.

The Fed's bond purchases have pushed down the short-term yields of U.S. debt, and expectations of a mild interest rate cut in 2026 have limited long-term upside; Japanese bond yields have risen due to expectations of interest rate hikes, and ample global liquidity has partially absorbed its new supply pressure; European bond yields have remained high, supported by expectations of "no interest rate cuts." The global bond market has formed a new pattern of "a downward trend in U.S. debt, increased volatility in Japanese debt, and high volatility in European debt." The restructuring of interest rate spreads has triggered the reallocation of cross-border capital.

The Fed's easing provides a liquidity base, the policy clarity of Europe and Japan reduces market uncertainty, and funds are concentrated in the dual-quality assets of "income + safety". Silver and other precious metals have strengthened their upward momentum due to falling real interest rates and hedging demand; the stock market presents structural opportunities. The depreciation of the US dollar is good for emerging market stock markets. European and Japanese stock markets have benefited from stable local policies and improved fundamentals.

Future Outlook: Game and Collaboration under the Continuation of Differentiation

The policy paths of the three major central banks in 2026 are clear: the Federal Reserve maintains "gradual easing", affected by the stickiness of inflation or the risk of recession; the European Central Bank insists on stable interest rates, and the tendency to raise interest rates depends on marginal changes in data; the Bank of Japan enters an observation period after raising interest rates, anchoring the exchange rate, government bond yields and inflation. Policy differentiation is a "dynamic coordination" under the dependence of the global economy, not a "zero-sum game." For investors, risks and returns can be balanced by grasping three core logics: the Fed's loose liquidity dividend, currency interest rate opportunities driven by policy differentiation, and asset structural trends under capital reallocation. Overall, the "core easing + edge hedging" pattern will dominate the global financial market in 2026. The transmission effect and gaming space of policy linkage will be the core source of future market opportunities and risks.