Global Markets Rally on Fed's Dovish Tone

Global financial markets, particularly in Asia, responded with renewed optimism on Tuesday, November 25, 2025, following increasingly strong signals from senior United States Federal Reserve officials that another interest rate cut is likely at their next policy meeting on December 9-10. This prospect of looser US monetary policy has calmed investor nerves after a volatile few weeks marked by concerns over artificial intelligence stock valuations and global economic uncertainty.

The positive sentiment was largely fueled by comments from Fed Governor Christopher Waller. Speaking to Fox Business on Monday, November 24, Waller indicated his support for a rate reduction, citing the central bank's dual mandate of maintaining price stability and supporting employment. "My concern is mainly the labour market," Waller stated, suggesting that recent data indicates sufficient weakness to warrant a cut.

His views were echoed by San Francisco Fed President Mary Daly, who told the Wall Street Journal she also supports lowering rates due to a deteriorating job market. These statements, following similar remarks from New York Fed President John Williams, have led market analysts to believe that Fed Chair Jerome Powell is likely to support the move. As a result, the probability of a December rate cut, as tracked by the CME FedWatch Tool, has surged to nearly 80%, a significant jump from just over 40% a week prior.

Implications for the Kenyan Economy

For Kenya, a US Federal Reserve rate cut carries significant economic implications. A reduction in US interest rates typically weakens the US dollar globally. This could provide a much-needed boost to the Kenyan shilling, which has faced depreciation pressures. A stronger shilling would lower the cost of imports—such as fuel, machinery, and food items—potentially helping to ease domestic inflationary pressures.

Furthermore, a rate cut offers potential relief for Kenya's public debt, a substantial portion of which is denominated in US dollars. Lower US interest rates can translate into lower debt servicing costs, freeing up crucial funds in the national budget for other development priorities like infrastructure, healthcare, and education.

The decision could also stimulate foreign investment into the East African nation. With lower returns available on US assets, international investors often look to emerging and frontier markets like Kenya in search of higher yields. Kiprono Kittony, Chairman of the Nairobi Securities Exchange, has previously noted that US rate cuts are expected to drive dollar inflows, boosting demand for local bonds and equities.

US Economic Context: A Weakening Labour Market

The Fed's potential policy shift is rooted in growing concerns over the health of the US labor market. Recent data points to a significant slowdown. Year-over-year payroll growth in October 2025 was estimated at a mere 0.5%, a sharp decline from 1.7% at the start of the year. The unemployment rate has also been climbing, rising from 4.0% to 4.3% by August 2025. The most recent data for September showed the unemployment rate at 4.4%.

Compounding these concerns is a surge in planned job cuts, which rose 175% year-over-year in October 2025, reaching the highest level for that month since 2003. This trend has been particularly pronounced in the technology and finance sectors.

The Fed's analysis has been complicated by a recent US government shutdown, which led the Bureau of Labor Statistics (BLS) to cancel the release of the official October jobs and inflation reports. This has left policymakers relying on delayed and alternative data sources as they prepare for their December meeting. The BLS has confirmed that the November Consumer Price Index (CPI) report will be delayed until December 18, after the Fed's meeting. The latest available data from September showed US inflation at 3.0%.

A Cautious Outlook

While the potential benefits for Kenya are clear, some analysts advise caution. The impact on Kenyan assets may be milder than in past cycles if the Central Bank of Kenya (CBK) continues its own rate-cutting path, which would keep the interest rate differential between the two countries relatively stable. The CBK often aligns its monetary policy with the Fed's to manage inflation and currency stability.

Nonetheless, the dovish shift from the world's most influential central bank provides a potential tailwind for the Kenyan economy. For local businesses and consumers, the downstream effects of a more stable currency, potentially lower borrowing costs, and increased foreign investment could offer a welcome economic boost heading into 2026.