Why do assets collectively "rebell" after the interest rate cut?

Question

Federal Reserve Chair Powell announces a 25 basis point rate cut, and immediately, silver prices break records and surge above $61, gold fluctuates slightly, Bitcoin unexpectedly plunges.

On the early morning of December 11, 2025, the Federal Reserve announced a 25 basis point reduction in the federal funds rate target range to 3.5%-3.75%, marking the third rate cut of the year.

The policy statement states that U.S. economic activity is expanding moderately, but job growth has slowed, and inflation remains somewhat high. This rate cut, fully anticipated by the market, has triggered a series of unconventional market reactions.

Policy Turnaround

At the last FOMC meeting of 2025, the Fed announced a 25 basis point rate cut as scheduled. Since the start of this easing cycle in September 2024, this is the sixth cut.

● The policy statement indicates that the main reason for the rate cut is signals of a softening labor market. Bai Xue, Senior Vice President of Research and Development at Dongfang Jincheng, considers this a preemptive, risk-managed policy adjustment aimed at preventing employment softness from transmitting to consumption and economic growth.

● Unlike previous meetings, three votes against the rate cut were cast, the highest since September 2019. One member advocated a 50 basis point cut, while two preferred to keep rates unchanged.

● The dot plot shows Fed officials expect only one more rate cut possibly in 2026. However, Minsheng Bank Chief Economist Wen Bin pointed out that if the new Fed Chair adopts a dovish stance, the actual rate cut next year could be larger than the dot plot predicts.

Anomalous US Treasury Market

● Against the background of the rate cut, the US Treasury market has experienced an unprecedented trend in nearly three decades—yields are rising while prices fall. Since the easing cycle began, the 10-year Treasury yield has increased by nearly half a percentage point.

● As of December 9, the 10-year yield rose to 4.17%, hitting the highest since September; the 30-year Treasury yield also climbed to around 4.82%, a recent high. This pattern is completely opposite to typical easing cycles.

● There are three interpretations of this anomaly: optimists believe it shows market confidence that the economy will not slip into recession; neutral observers see it as Treasury yields returning to pre-2008 normal levels; pessimists worry it reflects a “bond vigilante” punishing US fiscal disorder.

● Barry, Global Rates Strategist at J.P. Morgan, pointed out two key factors: first, the market has already priced in easing expectations; second, the Fed’s significant rate cut amid still-high inflation maintains economic expansion rather than ending it.

Silver Mania

● In stark contrast to the cautious bond market, the silver market is experiencing historic rallies. On December 12, spot silver broke through $64 per ounce, hitting a record high. Since the start of this year, silver has surged by an astonishing 112%, nearly double the increase in gold.

● Multiple factors drive this surge. Expectations of rate cuts reduce the opportunity cost of holding interest-free assets. Additionally, silver has been included in the US critical minerals list, raising concerns about potential trade restrictions.

● More fundamentally, the silver market has experienced a supply deficit for the fifth consecutive year. According to the Silver Institute, the global supply deficit in 2025 is expected to be between 100 million and 118 million ounces.

● Industrial demand remains a long-term support for silver, especially in photovoltaics, where silver use is projected to account for 55% of global demand. The International Energy Agency estimates that by 2030, solar alone will increase silver demand by nearly 150 million ounces annually.

Gold Fluctuations

Compared to the bond market’s cautiousness, gold’s reaction to the Fed’s rate cut has been relatively moderate. After the announcement, COMEX gold futures rose slightly by 0.52%, closing at $4,258.30 per ounce.

● Gold ETF holdings have also shown subtle changes. As of December 12, the world’s largest gold ETF, SPDR, held about 1,049.11 tons of gold, slightly down from October’s high but still up 20.5% year-on-year.

● Central bank gold purchases provide long-term support. In Q3 2025, global central banks bought 220 tons of gold, up 28% from the previous quarter. China’s central bank has increased gold reserves for 13 consecutive months.

● Market analysis indicates that short-term gold price fluctuations are mainly driven by two opposing forces: on one side, support from the rate cut; on the other, geopolitical easing and declining investment demand.

Bitcoin’s Cold Reception

● While traditional assets respond to the Fed’s rate cut in various ways, the cryptocurrency market remains unusually calm. Bitcoin briefly surged to $94,500 after the rate cut announcement, then quickly plunged to around $92,000.

● Within 24 hours, the total liquidation volume across crypto markets exceeded $300 million, with 114,600 traders liquidated. This reaction is markedly different from the usual market view of Bitcoin as a risk asset.

● Analysts note that Bitcoin is currently in a clear decoupling state. Despite continued buying by companies like MicroStrategy, structural selling pressure remains strong.

● Standard Chartered recently drastically revised its Bitcoin forecast, lowering the year-end target from $200,000 to around $100,000. The bank believes that large Bitcoin holders may have “already reached their peak.”

Logic Behind Market Divergence

The starkly different reactions of various asset classes to the same monetary policy event reveal deep market logic. Uncertainty about the Fed’s policy path is a key factor.

● According to the latest economic forecast summary, Fed officials’ median projections for U.S. GDP growth from 2025 to 2028 have increased, with the 2026 forecast rising from 1.8% to 2.3%.

● However, internal disagreements within the Fed about future policy paths are widening. Cui Xiao, Senior US Economist at Pictet Wealth Management, said, “The divergence in the 2026 interest rate dot plot is significant; the median forecast of 3.375% is unstable.”

● Meanwhile, concerns about the Fed’s independence are growing. U.S. President Trump has repeatedly expressed dissatisfaction with the pace of rate cuts, saying it is “too small and should be doubled.”

● Trump’s criterion for the next Fed Chair is “willingness to cut rates immediately.” If a more compliant candidate is appointed, it could further undermine market confidence in the Fed’s independence.

● Within 24 hours of the rate cut announcement, COMEX silver futures have gained 109% year-to-date, while the 10-year Treasury yield has risen to 4.17%, a three-month high.

When the Fed’s rate cut, a traditional risk asset booster, triggers a series of unconventional reactions across markets, it sends a clear signal: monetary policy alone can no longer fully govern complex asset price dynamics.

As the Fed Chair transition approaches and economic data fluctuate, markets in 2026 may face more “abnormal” challenges. Investors who can identify the core drivers of different assets may find new balance amid this divergence.

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