1) Fed Funds Rate Cut by 25bp, Two Cuts Expected Next Year
The Federal Open Market Committee (FOMC) lowered the target range for the federal funds rate by 25 basis points to 4.25% - 4.5%. Cleveland Fed President Loretta Mester dissented, advocating for a pause. The Fed also adjusted the overnight reverse repurchase agreement (RRP) rate to 4.25%. According to the new quarterly dot plot, some members reduced their expectations for rate cuts next year, with the median projecting two 25bp cuts by the end of next year, bringing the benchmark rate down to 3.75% - 4%. Chair Jerome Powell emphasized that "today's action brings the policy rate down from its peak by 1 percentage point, and our policy stance is now significantly less restrictive." He added, "Therefore, we can be more careful when considering further adjustments to the policy rate." The Fed also stated that it is in a "new stage" of the rate adjustment process and stressed the need for inflation progress confirmation.
2) Powell, 'Dove in Hawk's Clothing'
Chair Powell stated that inflation remains stubbornly high and there is still work to be done to achieve price stability, with the 2% target potentially taking 1-2 years to reach. This suggests a need for restrictive policy. Max Gokhman of Franklin Templeton Investment Solutions characterized Powell as "a dove in hawk's clothing." Whitney Watson of Goldman Sachs Asset Management predicted that the Fed would skip the January FOMC meeting and resume rate cuts in March. Scott Ladner of Horizon Investments noted that "despite hawkish expectations, the dot plot was even more hawkish," highlighting the absence of a specific timeframe for reaching the estimated neutral rate of 3%.
3) Trump Key Advisor Musk Opposes Stopgap Funding Bill
Elon Musk, a key advisor to Donald Trump who played a significant role in his re-election campaign and is expected to lead the Department of Government Efficiency (DOGE), has opposed the stopgap funding bill, joining the ranks of conservative hardliners criticizing House Speaker Mike Johnson's plan. While the House and Senate agreed to extend government funding until March, the agreement includes approximately $29 billion in disaster relief funds and over $300 billion for agricultural programs and other disaster-related spending, angering fiscal conservatives. With a Friday deadline looming to avert a government shutdown, Musk stated, "This bill must not pass." This conflict highlights the growing division and shrinking support for Trump's policy priorities within the Republican Party.
4) UK Stagflation Fears Rise; Two Rate Cuts Next Year Unlikely
UK inflation surged to its highest level in eight months, fueling concerns about entering the new year with stagflation. The Consumer Price Index (CPI) rose from 2.3% in October to 2.6% in November, driven by increases in automotive fuel and clothing prices, according to the UK Office for National Statistics. Service inflation, closely monitored by the Bank of England (BOE), reached 5%, exceeding the BOE's forecast of 4.9%. Paul Dales of Capital Economics stated, "The BOE is unlikely to deliver an early Christmas present in the form of an additional rate cut tomorrow." He added that "the BOE will likely remain concerned about inflation for some time." Money markets have recently reduced expectations for rate cuts in 2025 from three times to less than twice. While the government pledged to rapidly expand the economy and improve living standards, GDP has declined for two consecutive months.
5) Brazil Finance Minister Warns of Potential Speculative Attacks on Real
Fernando Haddad, Brazil's finance minister, warned that the real could face "speculative attacks" and expressed hope for a return to exchange rate stability. He urged lawmakers to act rationally and refrain from further cuts to government spending. Doubts are growing about President Luiz Inácio Lula da Silva's campaign promise to curb a fiscal deficit of 10% of GDP, leading the real to suffer the worst performance globally over the past four trading days. The currency has depreciated by 21% since the beginning of the year. Despite Haddad's comments, the dollar-real exchange rate continued to rise, and Brazil's benchmark stock index, Bovespa, plunged by 3.4% during trading hours, reaching its lowest point since June.
(Source: Bloomberg News)
