THE ETERNAL SOVEREIGN

Tag: FED

  • U.S. stock futures were little changed as uncertainty over the interest rate outlook lingered, with Walmart earnings in focus.

    U.S. stock index futures were largely unchanged Wednesday night after the minutes from the Federal Reserve’s January meeting delivered mixed signals on interest rates, adding to uncertainty about the longer-term policy path.

    Investors are now turning their attention to upcoming earnings from retail heavyweight Walmart Inc (NYSE:WMT) for fresh insight into the health of the U.S. economy.

    Markets were also pressured by rising geopolitical tensions involving Iran, as reports pointed to a stronger U.S. military presence in the Middle East despite continued talks between Tehran and Washington.

    As of 20:00 ET (01:00 GMT), S&P 500 Futures dipped slightly to 6,892.0, Nasdaq 100 Futures edged down nearly 0.1% to 24,942.75, and Dow Jones Futures slipped 0.1% to 49,685.0.

    Futures held steady after Wall Street posted gains in the regular session, driven mainly by an ongoing rebound in technology stocks and data showing resilience in the U.S. economy. However, caution surrounding the Fed’s outlook kept major indexes below their intraday peaks.

    Fed minutes reveal divisions on inflation and rates

    Minutes from the Fed’s January meeting showed officials unanimously agreed to keep interest rates steady at 3.50%–3.75%. Still, policymakers appeared divided over the next move. Several members warned that inflation could take longer than expected to return to the central bank’s 2% target.

    A number of officials also suggested that rate hikes could be considered if inflation remains elevated for an extended period — a tone that contrasts with market expectations for further easing this year.

    Artificial intelligence emerged as a key area of debate, with officials split on whether the rapidly expanding sector will ultimately fuel inflation or help contain it.

    Walmart earnings in focus

    Walmart Inc (NYSE:WMT) is scheduled to report fourth-quarter results on Thursday, with particular attention on its 2026 outlook, which may offer broader clues about U.S. consumer strength.

    According to Investing.com data, Walmart is expected to post earnings per share of $0.7269 on revenue of $190.4 billion.

    As the world’s largest retailer by valuation and a widely followed barometer of U.S. consumer spending, Walmart’s results come at a time when sticky inflation is showing signs of straining retail demand.

    Also due Thursday are U.S. December trade data and weekly jobless claims.

    Wall Street gains led by tech rebound

    Wall Street ended higher on Wednesday, led by technology stocks as the sector extended its recovery from recent declines.

    Still, both major indexes and tech shares retreated from session highs amid lingering concerns about the impact of artificial intelligence. Worries over AI-driven disruption have recently weighed on software and logistics companies, while concerns about heavy AI-related capital spending have pressured firms exposed to data centers.

    The S&P 500 rose 0.6% to 6,881.32, the NASDAQ Composite gained 0.8% to 22,753.64, and the Dow Jones Industrial Average added 0.3% to 49,662.66.

    Sources: Ambar Warrick

  • Powell enters final phase with rates unchanged and little guidance

    Federal Reserve Chair Jerome Powell offered few substantive remarks during his press conference on Wednesday, sidestepping multiple questions about the upcoming leadership transition as his term ends on May 15. He declined to comment on President Donald Trump’s potential nominee to succeed him, as well as on the president’s public criticism of his tenure.

    Powell also avoided addressing questions related to the Department of Justice investigation involving him and the ongoing Supreme Court case concerning the possible removal of Fed Governor Lisa Cook. In response to these issues, he repeatedly indicated that he had nothing further to add.

    “I have nothing on that for you.”

    He repeated that response seven times in total. On four occasions, he simply said,

    “I don’t have anything on that for you.”

    After the FOMC voted to keep the federal funds rate in a range of 3.50%–3.75%, Powell provided no additional forward guidance beyond reiterating the Fed’s data-dependent, meeting-by-meeting approach. He did, however, acknowledge the underlying strength of the U.S. economy.

    Powell noted that the unemployment rate has remained low at around 4.4% in recent months, even as job growth has slowed. He also said inflation is expected to ease as the effects of President Trump’s tariffs fade.

    Overall, Powell characterized the risks of higher inflation and rising unemployment as balanced, signaling little urgency for policy action. This assessment increases the likelihood that the federal funds rate will remain unchanged at his final two meetings as FOMC chair.

    Officials in the Trump administration broadly share our “Roaring 2020s” outlook, which assumes stronger-than-expected productivity growth will lift real GDP while easing inflation pressures as unit labor cost growth falls toward zero. They argue that this expectation supports additional cuts to the federal funds rate—a view echoed by two dissenting members of the FOMC, who expressed similar reasoning at the latest meeting.

    We take a different view. Cutting the federal funds rate further from current levels would heighten the risk of financial instability, particularly by fueling a melt-up in equity markets. A similar dynamic is already evident in precious metals. Additional rate cuts would also put further downward pressure on the dollar, potentially reigniting inflationary pressures.

    Bond markets appear to share this skepticism. When the Fed reduced the federal funds rate by 100 basis points in late 2024, the 10-year Treasury yield rose by a similar amount. Even after another 75-basis-point cut late last year, the yield held around 4.00% and has since climbed to 4.26%. We continue to expect the 10-year yield to trade largely between 4.25% and 4.75% this year—levels that were typical in the period before the Global Financial Crisis.

    Sources: Ed Yardeni

  • Morning Update: Powell’s Response Shakes Markets

    Ankur Banerjee provides a preview of the day ahead in European and global markets. Investors remain focused on the escalating conflict between U.S. President Donald Trump and Federal Reserve Chair Jerome Powell, who is pushing back against attempts to exert political control over the Fed and its interest rate decisions.

    Meanwhile, growing turmoil in Iran—where over 500 people have reportedly been killed, according to human rights groups—adds to the geopolitical uncertainties shaping market sentiment at the start of 2026, supporting demand for safe-haven assets.

    Markets opened Monday with shocking news that the Trump administration had threatened to indict Powell over his Congressional testimony last summer concerning a Fed building renovation. Powell described this as a “pretext” aimed at increasing political influence over monetary policy.

    “This issue centers on whether the Fed can continue setting interest rates based on data and economic realities, or if monetary policy will instead be shaped by political pressure and intimidation,” Powell stated.

    The initial market reaction saw the dollar weaken and stock futures decline, although the impact on interest rate policy remains unclear. Gold prices surged past $4,600 per ounce as investors sought refuge.

    Despite the unsettling news, market responses were measured, with no signs of panic selling as investors await further clarity on the Fed’s independence and the future path of interest rates.

    WASHINGTON, DC – DECEMBER 13: U.S. Federal Reserve Board Chairman Jerome Powell speaks during a news conference at the headquarters of the Federal Reserve on December 13, 2023 in Washington, DC. The Federal Reserve announced today that interest rates will remain unchanged. (Photo by Win McNamee/Getty Images)

    Markets may now generally anticipate that the Federal Reserve will yield to Trump’s influence and ease interest rates freely once a new Fed chair takes over after Powell’s term ends in May. Futures pricing currently reflects expectations of two rate cuts this year.

    With Japanese markets closed on Monday, no cash trading occurred in Treasuries during Asian hours. Attention will shift to the Treasury market when London trading begins.

    Key events that could impact markets on Monday include: Germany’s November current account balance and the euro zone Sentix investor confidence index for January.

    Sources: Reuters

  • Federal Reserve could accelerate rate cuts amid rising deflation risks

    The ISM service index suggests potential positive revisions for fourth-quarter GDP growth. On Wednesday, the Institute for Supply Management (ISM) reported that its non-manufacturing service sector index increased to 54.4 in December from 52.6 in November, marking the third consecutive month of expansion and the fastest pace of growth in over a year.

    The new orders sub-index rose sharply to 57.9 from 52.9, while business activity climbed to 56 from 54.5. Additionally, new export orders improved to 54.2, up from 48.7 in November. Out of 16 surveyed service industries, 11 showed expansion in December.

    Conversely, the ISM manufacturing index fell to 47.9 in December from 48.2 the prior month, continuing its contractionary trend for the tenth straight month (a reading below 50 indicates contraction). Only 2 of 17 manufacturing industries—Electrical Equipment, Appliances & Components, and Computer & Electronic Products—reported growth, likely supported by strong data center demand.

    ADP’s December report showed private payrolls increasing by 41,000, missing economists’ expectation of 48,000. This follows a loss of 29,000 private jobs in November, meaning just 12,000 private jobs were created over the last two months. Manufacturing shed 5,000 jobs in December, while education and health services added 39,000, and leisure and hospitality gained 24,000 jobs. Regionally, the West lost 61,000 private sector jobs, while the South led with a gain of 54,000.

    Residential investment acted as a 5.1% drag on GDP growth during the second and third quarters. Strengthening GDP going forward will depend largely on stabilizing the residential real estate market, which remains sluggish due to high mortgage rates, rising insurance costs, and an oversupply in several key areas. According to the Intercontinental Exchange, prices for U.S. condominiums dropped 1.9% in September and October, with high homeowners association (HOA) fees and insurance expenses cited as major factors. In nine major metropolitan regions, over 25% of condominiums have fallen below their original sale prices. While multiple Federal Reserve rate cuts could help support home prices, the current weakness is fueling deflationary concerns that the Fed needs to address.

    If deflation emerges from (1) weak housing and rental prices, (2) low crude oil prices, and (3) deflation imported from China and other struggling global economies, the Fed may need to implement rapid interest rate cuts totaling around 100 basis points. With President Trump expected to nominate a new Fed Chair soon, current Chair Jerome Powell is likely to become a lame duck. Minutes from the December Federal Open Market Committee (FOMC) meeting indicated at least one more 0.25% rate cut is probable, but any further deflationary signals could prompt the Fed to enact much larger reductions in key rates in the coming months.

    President Trump is expected to nominate a new Federal Reserve Chair in January who will likely reverse the Fed’s current restrictive policies and adopt a more pro-business stance. Should Kevin Hassett, the current Chair of the Council of Economic Advisors, be appointed, the Fed would gain a strong economic advocate, a development that many find promising and exciting.

    Sources: Investing