Last week was

all about central banks

. As expected, the

Bank of Canada

held rates steady, signalling a dovish hold as policymakers expressed more concern about subdued economic activity

than inflation

.

Similarly, the

United States Federal Reserve

cut rates by 25 basis points to a range of 3.50 to 3.75 per cent, to help counteract slight increases in inflation and unemployment. But the real surprise was the tone. Fed chair Jerome Powell’s press conference leaned dovish, suggesting the Fed is prepared to ease further if conditions warrant. Although two members were

opposed to the cut

, one, Trump pick Stephen Miran, pushed for a larger 50-basis-point move. Disagreement among Fed members highlights the balancing act it needs to play. The Fed’s Summary of Economic Projections showed six of nineteen officials of the Fed’s rate-setting committee didn’t favour a cut. And the median dot plot for 2026, a compilation of individual officials’ interest rate projections, was unchanged. Still, inflation forecasts improved, pointing to potentially more cuts than the two currently priced in to markets.

Powell downplayed inflation risks, noting that excluding tariff-related distortions, inflation is running in the low two per cent range. He called tariff-driven price increases “one-time shocks.” But he voiced concern about

labour market weakness

, suggesting payroll gains may be overstated by 60,000 jobs — implying a net loss of 20,000 jobs per month since April and not the reported 40,000 per month gains. Former Fed senior trader Joseph Wang commented that this acknowledgement of labour softness opens the door for deeper cuts as inflation stabilizes near two per cent and employment continues to weaken.

Adding to the dovish backdrop, the Fed will restart Treasury purchases to address year-end liquidity pressures, initiating US$40 billion per month in short-term bills. This proactive step underscores the Fed’s commitment to market stability and reinforces its accommodative stance. Liquidity injections of this scale typically support risk assets such as equities, ease strains in repo (short-term financing) and bolster confidence in funding markets.

For investors

, the implications are clear. A softer labour market and improving inflation dynamics create a policy environment tilted toward the U.S. government supporting economic growth through fiscal measures. Disinflation is bullish for bonds and rate-sensitive sectors such as housing and utilities, while lower real rates and liquidity injections provide a tailwind for gold and silver. Equity markets, which thrive on dovish surprises such as rate cuts, could see continued momentum, particularly in technology and financials. Cyclicals may also benefit if growth fears recede. Interestingly, Powell’s flexibility contrasts sharply with hawkish signals from the European Central Bank and the Bank of Japan, highlighting global policy divergence.

Gold and silver stand out as clear winners from last week’s Federal Open Market Committee (FOMC), the Fed’s policymaking body. Falling real rates and liquidity injections strengthen the case for precious metals such as gold, while silver’s industrial demand adds upside in a reflationary environment. Historically, aggressive Fed accommodation — lowering interest rates and increasing money supply to stimulate a sluggish economy — has coincided with strong rallies in both metals, and renewed Treasury purchases could weaken the dollar further, amplifying gains.

Equities remain sensitive to Fed guidance, rallying on dovish signals and pulling back on hawkish tones. With Powell signalling flexibility and liquidity support, risk assets could extend gains into the next few months. Technology remains a core driver of U.S. markets, but industrials and consumer discretionary may catch up if stimulus expectations grow. Liquidity operations reduce funding stress and support valuations, creating a strong backdrop for equities despite global volatility.

Finally, I find it interesting that tariffs have had virtually no impact on S&P 500 corporate earnings. Despite headline risks, and according to Charlie Bilello, chief market strategist of Creative Planning, S&P 500 operating earnings surged 22 per cent year-over-year in Q3 — the strongest since late 2021 — with profit margins hitting a record 13.6 per cent. This resilience underscores how policy shocks don’t always translate into earnings shocks.

Bottom line: The Fed’s December meeting was more than a rate cut, it was a clear signal that it’s OK to put risk-on positioning in the market. Powell’s new tone, combined with liquidity injections and improving inflation dynamics, sets the stage for further momentum in gold, silver and equities heading into 2026, perhaps dispelling worries of an impending correction. In a world of policy divergence and rising leverage, risk management remains critical, but the next leg of the bull market may already be underway.

From a Canadian perspective, this shift should be a welcome gift to the Bank of Canada, which has been working hard to navigate a worsening domestic economic outlook. Having already cut rates at a faster pace than the Fed earlier this year, the BoC now faces the challenge of supporting the economy without putting excessive downward pressure on the Canadian dollar. A more accommodative Fed reduces that risk and provides breathing room for policymakers north of the border. It also bodes well for Canadian equity markets, thanks to improved global liquidity and a softer U.S. dollar environment.

Overall, the Federal Reserve turned what many feared would be a lump of coal into an unexpected gift, delivering a dovish pivot that sets the stage for a brighter outlook heading into 2026.

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Martin Pelletier, CFA, is a senior portfolio manager at Wellington-Altus Private Counsel Inc., operating as TriVest Wealth Counsel, a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax, estate and wealth planning. The opinions expressed are not necessarily those of Wellington-Altus.

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