Time of Higher Silver Volatility: Markets Surprised by Fed Policy Shift

• Fed rate cut expectations surge: Probability of a December 2025 rate cut jumped from 39% to nearly 70% in one day (CME FedWatch Tool)
• Silver market reacts: Increased volatility as traders respond to dovish Fed commentary
• Bond yields drop: 2Y and 10Y Treasury yields fall, steepening the curve and boosting appetite for risk assets, including precious metals

Recent days have brought significant changes in investor expectations regarding the Federal Reserve’s monetary policy, which have notably impacted the futures market, bond yields, and precious metals – especially silver. The rising probability of a rate cut in December has triggered increased price volatility in the silver market, potentially signaling more dynamic movements in the weeks ahead.

On Friday, the price of 30-day federal funds futures for December rose from 96.175 to 96.215, accompanied by a record trading volume of 255.63 thousand contracts – more than three times the 20-day average. The surge in trading activity reflects a sharp shift in market sentiment: according to the CME FedWatch Tool, the probability of a 25 bp rate cut in December jumped to 69.7%, up from 39.07% just a day earlier.

Labor Market and Inflation Data – A Mixed Picture

Labor market data for September, released late due to the previous government shutdown, also contributed to the changing sentiment. Employment rose by 119,000 jobs, significantly above the forecast of 55,000. However, markets also noted an increase in the unemployment rate from 4.3% to 4.4%.

Due to the disrupted publication schedule, October and November data will be released together – with a one-week delay. This means that the upcoming FOMC decision will be based on a limited view of labor market conditions. While the September numbers were better than expected, markets had assumed the Fed would hold rates steady, especially since CPI inflation remains elevated at 3% year-over-year – well above the Fed’s 2% target.

Dovish Signals from the Federal Reserve

Investor sentiment was further influenced by dovish remarks from Federal Reserve officials. John Williams, President of the New York Fed, suggested that a rate cut could be implemented “without jeopardizing the inflation target,” which the market interpreted as a clear sign of a shift toward easing.

Meanwhile, Susan Collins (Boston Fed) said the current level of interest rates is “appropriate,” and Lorie Logan (Dallas Fed) stated she favors “pausing rate changes for a while.” Despite some caution, overall market sentiment is now tilting in favor of a rate cut in December.

Bond Market Reaction and Impact on Risk Assets

The bond market reacted swiftly. The yield on 2-year U.S. Treasuries fell by 4.8 basis points to 3.51%, while the 10-year yield dropped by 3.7 basis points to 4.067%. As a result, the yield curve steepened, with the 2Y–10Y spread rising to 55.5 basis points.

Growing expectations for lower rates are benefiting not only bonds but also risk assets – including homebuilders and precious metals. For silver, which is highly sensitive to interest rate and inflation expectations, this environment creates heightened volatility.

Silver as a Barometer of Monetary Policy

Silver lost nearly 4% during today's session, falling to around $48.63 per ounce. However, silver contracts began to rise during premarket trading in the US. An hour before the US market closed, they rose above $50.35, reacting to the support zone around $49.40 and reducing the daily price decline to 0.63%.

Falling interest rates typically support higher prices for precious metals by lowering the opportunity cost of holding non-yielding assets. However, with uncertainty surrounding the Fed's next moves and analysts divided on the outlook, silver market volatility may continue to rise. Any new signal – whether from labor data, inflation figures, or Fed commentary – could trigger sharp price movements.

For investors, this means one thing: the precious metals market, and silver in particular, is once again acting as a barometer for monetary policy expectations. The volatility we're now seeing may persist through the end of 2025 – and its scale will largely depend on how the Fed responds to upcoming macroeconomic data.