A hawkish cut, a split house, and a Fed Chair on borrowed time

Economic

Summary:

The Fed delivered a hawkish rate cut amid deep internal splits, signaling limited easing ahead, while upbeat forecasts lifted markets and uncertainty grew over Jerome Powell’s looming replacement and future Fed leadership.

‘Tempus fugit, ’ as we cry out at closing time in my local Wetherspoons.

We’re already more than a quarter of the way through December and speeding at full throttle towards year-end.

Where has the time gone? The Federal Reserve has just held its last meeting of 2025 and cut interest rates by 25 basis points, as expected.

Ahead of the decision, analysts were calling for a ‘hawkish cut’, and that is pretty much what was delivered.

The FOMC’s ‘Dot Plot’ (part of the quarterly Summary of Economic Projections) had a median forecast of just one-quarter-point cut next year, probably in the first half.

But there was a great deal of dispersion across the dots.

Out of the nineteen FOMC members, one anticipates six cuts next year (that would take the Fed Funds rate down to 2.00-2.25% from current levels, well below inflation forecasts), while at the other end, three members see one rate hike.

According to the CME’s FedWatch Tool, the ‘real money’ sees one, maybe two reductions, which is pretty much in line with the Fed itself.

We now have another twelve months to go before we’ll know how accurate this prediction turns out to be.The Fed’s current rate-cutting cycle began back in September 2024 when they surprised most people by announcing a 0.50% reduction.

This was double the forecasts, and somewhat controversial given that it came just two months before the Presidential Election.

The Fed made two further quarter-point cuts before the year-end, before going on hold until this September, blaming the possible inflationary effects of tariffs.

This drew the ire of President Trump, who felt that the US central bank had politicised monetary policy, and he may have a point.

Overall, rates were reduced by 100 basis points last year, and a further seventy-five points in 2025, for a total of 175, taking the Fed Funds rate range down to 3.50-3.75%, its lowest in over three years.

All that monetary stimulus was a pretty powerful tailwind for risk assets, which, given yesterday’s forecast, will lose a lot of its force going forward. Despite this, the FOMC vote breakdown shows little appetite for raising rates, so that’s a blessing.The rest of the FOMC’s Summary was also quite upbeat. Members upgraded their growth outlook for next year.

They now expect GDP growth of 2.3%, up from 1.8% in September.

Inflation (as measured by Core PCE) is expected to moderate to 2.5% by the end of 2026, down from its current reading of 2.8% annualised, and below September’s prediction of 2.6%. It is still expected to hit the Fed’s 2% target in 2028.

Meanwhile, Unemployment is forecast to hold steady at 4.4%, which remains historically low.

All in all, that’s a fairly solid set of forecasts, which was enough to see risk assets rally and the US dollar fall.

In his subsequent press conference, Chair Jerome Powell said that the Fed was now in ‘wait and see’ mode, as is Mr Powell himself.

His second term as Chair ends in May, yet speculation over the identity of his successor has been swirling around since President Trump’s inauguration in January.

Mr Trump has said he has decided on his preferred candidate, and Treasury Secretary Scott Bessent has suggested that this could be announced before Christmas.

Kevin Hassett, the current Director of the National Economic Council, is considered the shoo-in candidate.

He’s a well-known Trump supporter and a well-known dove.

But Kevin Warsh can’t be ruled out either. He has served as a member of the Federal Reserve Board of Governors and is a Republican.

He’s also a handsome chap, which may give him an edge over Mr Hassett in President Trump’s eyes. Let’s keep the Administration beautiful.What does all this mean? Well, there’s some uncertainty creeping in over at the Fed, and evidence of growing diversity of expressed opinions.

It also feels as if the rule of the Chair won’t be quite as absolute as it has been in the past.

These aren’t bad things. It’s time that the Fed had a bit of a shake-up. But once his replacement is named, Jerome Powell’s life is going to get a lot harder.

There will effectively be two Fed Chairs for the next five months, and both will be scrutinised intensely.

Disagreements will be highlighted. And that has the potential to affect decision-making negatively.

Source: invezz

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James Whitman

Palestinian-Israeli conflict

Political

● International troops in Gaza would deploy in Israeli-held areas, say US officials

● ISF will not fight Hamas, say US officials

● Indonesia plans to send 20,000 troops for health and construction tasks

International troops could be deployed in the Gaza Strip as early as next month to form a U.N.-authorized stabilization force, two U.S. officials told Reuters, but it remains unclear how Palestinian militants Hamas will be disarmed.

The officials, speaking on condition of anonymity, said the International Stabilization Force (ISF) would not fight Hamas. They said lots of countries had expressed interest in contributing and U.S. officials are currently working out the size of the ISF, composition, housing, training and rules of engagement.

An American two-star general is being considered to lead the ISF but no decisions have been made, the officials said.

Deployment of the force is a key part of the next phase of U.S. President Donald Trump's Gaza peace plan. Under the first phase, a fragile ceasefire in the two-year war began on October 10 and Hamas has released hostages and Israel has freed detained Palestinians.

"There is a lot of quiet planning that's going on behind the scenes right now for phase two of the peace deal," White House spokesperson Karoline Leavitt told reporters on Thursday. "We want to ensure an enduring and lasting peace."

INDONESIA PREPARING TROOPS

Indonesia has said it is prepared to deploy up to 20,000 troops to take on health and construction-related tasks in Gaza.

"It is still in the planning and preparation stages," said Rico Sirait, spokesperson of Indonesian Defence Ministry. "We are now preparing the organizational structure of the forces to be deployed."

Israel still controls 53% of Gaza, while nearly all the 2 million people in the enclave live in the remaining Hamas-held area. The plan - which needs to be finalized by the so-called Board of Peace - is for the ISF to deploy in the area held by Israel, the U.S. officials said.

Then, according to the Trump peace plan, as the ISF establishes control and stability, Israeli troops will gradually withdraw "based on standards, milestones, and timeframes linked to demilitarization."

A U.N. Security Council resolution adopted on November 17 authorized a Board of Peace and countries working with it to establish the ISF. Trump said on Wednesday that an announcement on which world leaders will serve on the Board of Peace will be made early next year.

DEMILITARIZING GAZA

The Security Council authorized the ISF to work alongside newly trained and vetted Palestinian police to stabilize security "by ensuring the process of demilitarizing the Gaza Strip, including the destruction and prevention of rebuilding of the military, terror, and offensive infrastructure, as well as the permanent decommissioning of weapons from non-state armed groups."

However, it remains unclear exactly how that would work.

U.S. Ambassador to the U.N. Mike Waltz noted on Thursday that the ISF was authorized by the Security Council to demilitarize Gaza by all means necessary - which means use of force.

"Obviously that'll be a conversation with each country," he told Israel's Channel 12, adding that discussions on rules of engagement were under way.

Hamas has said the issue of disarmament hasn't been discussed with them formally by the mediators - the U.S., Egypt and Qatar - and the group's stance remains that it will not disarm until a Palestinian state is established.

Israel's Prime Minister Benjamin Netanyahu said in a speech on Sunday that the second phase would move toward demilitarization and disarmament.

"Now that raises a question: Our friends in America want to try and establish a multinational task force to do the job," he said. "I told them I welcome it. Are volunteers here? Be my guest," Netanyahu said.

"We know there are certain tasks that this force can perform ... but some things are beyond their abilities, and perhaps the main thing is beyond their abilities, but we will see about that," he said.

Reporting by Steve Holland and Michelle Nichols, additional reporting by Gribran Peshimam in Jakarta and Maayan Lubell in Jerusalem, Editing by William Maclean

Source: Reuters

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Adam

Stocks

Broadcom Inc., a chip company vying with Nvidia Corp. for AI computing revenue, slumped after its sales outlook for the red-hot market failed to meet investors’ lofty expectations.

The shares fell about 5% in premarket trading on Friday, following unsettling commentary from Chief Executive Officer Hock Tan on a conference call with analysts. He said the company has a backlog of $73 billion in AI product orders that will be shipped over the next six quarters — a number that disappointed some investors. But Tan sought to clarify that the figure was a “minimum.”

“We do expect much more as more orders come in for shipments within that next six quarters,” he said. “So our lead time, depending on the particular product it is, can be anywhere from six months to a year.”

The conference call followed a dizzying run-up in Broadcom shares, and investors were seeking more clarity on when and how the company will get a payoff from AI. Instead, they got a vague timetable without an AI revenue forecast for 2026 — mixed with some concerns about tightening profit margins.

Though Tan said that the company received an $11 billion order from AI startup Anthropic PBC in the fourth quarter, he warned that total margins were narrowing because of AI product sales.

Broadcom also held off on giving an annual AI revenue forecast, with Tan saying it was “a moving target.”

“It’s hard for me to pinpoint what ’26 is going to look like precisely,” he said. “So I’d rather not give you guys any guidance.”

The call followed a generally upbeat earnings report on Thursday afternoon. Sales will be about $19.1 billion in the fiscal first quarter, which ends Feb. 1, the company said. Analysts had estimated $18.5 billion on average, according to data compiled by Bloomberg. The company also boosted its quarterly dividend 10% to 65 cents a share.

The $11 billion Anthropic order in the fourth quarter followed a $10 billion deal in the third, he said. Broadcom also signed another customer order worth $1 billion, Tan said, without identifying the client.

Broadcom has benefited from demand for its custom chips as part of a massive data center build-out, giving it a growing piece of an industry dominated by Nvidia.

Broadcom shares slide after investors seek bigger AI payoff_1

Broadcom Has Outperformed Its Chip Peers in Past Year

an said that AI semiconductor revenue would double to $8.2 billion in the first quarter, compared with a year earlier.

Much of the recent buzz around Broadcom stems from its ties to some of the biggest AI model providers. ChatGPT maker OpenAI signed a pact with Broadcom for its own AI chip designs. In another transaction, Anthropic agreed to use tens of billions of dollars’ worth of computing services based on Alphabet Inc.’s Google Cloud TPUs. The latter components also rely on Broadcom designs, helping fuel investor enthusiasm about the chipmaker’s AI prospects.

Broadcom shares had earlier closed at $406.37 in New York, leaving them up 75% this year.

The Palo Alto, California-based company has a wide-ranging lineup that spans communications chips, networking components and software.

As part of its bid to generate greater revenue from AI, Broadcom has been updating its networking equipment to move data more quickly inside and between data centers. With AI models getting more complex, the ability to connect chips, racks of servers and whole buildings is growing more critical.

In the fiscal fourth quarter, which ended Nov. 2, Broadcom posted sales of $18 billion. Earnings rose to $1.95 a share, excluding some items. Analysts had estimated revenue of $17.5 billion and profit of $1.87 a share.

As part of Broadcom’s OpenAI deal, announced in October, the ChatGPT maker will use custom chips and networking components to help power its artificial intelligence services.

The deal will bring in additional revenue to Broadcom’s custom chip unit and provide deeper access to the booming AI market. Though the company has already seen its revenue from artificial intelligence computing climb, Broadcom has remained in the shadow of Nvidia, the top seller of AI processors.

Tan, the CEO, stands to benefit handsomely if that business meets long-term financial goals. The executive is due to get 610,521 shares of Broadcom if AI revenue hits $90 billion by fiscal 2030. If the sales reach $120 billion, Tan is poised for 300% of the payout.

Source: Bloomberg

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Winkelmann

Political

Economic

Nicolas Maduro (left) and his wife Cilia Flores

The US Treasury's Office of Foreign Assets Control published the list of sanctions on Thursday that included three nephews of Venezuela's president Nicolas Maduro and his wife Cilia Flores.

It is the latest move by the US in its ongoing political conflict with the Venezuelan regime and it comes a day after it seized an oil tanker off the country's coast.

Known in Venezuela as the 'narco-nephews' for their involvement in drug trafficking,Franqui Flores, Carlos Flores and Efrain Campo have all been denied access to any property or financial assets held in the US, and US companies and citizens can now be penalized for doing business with them.

Panamanian businessman Ramon Carretero, six firms and six Venezuela-flagged ships accused of transporting Venezuelan oil, were also included in the sanctions list.

The Treasury Department alleged that Carretero has had business dealings with Maduro's family and has also facilitated oil shipments on behalf of the Venezuelan government.

What the Treasury statement said

"Nicolas Maduro and his criminal associates in Venezuela are flooding the United States with drugs that are poisoning the American people," Treasury Secretary Scott Bessent said in a statement.

"Under President Trump's leadership, Treasury is holding the regime and its circle of cronies and companies accountable for its continued crimes," he added.

Flores and Campo had been jailed for years in the US on narcotics convictions. Flores had already been sanctioned in July 2017, but he was removed from Treasury's list in 2022 during the Biden administration, during an effort to promote negotiations for democratic elections in Venezuela.

US plans more tanker seizures, sources say

Meanwhile, sources familiar with the matter said the US was preparing to seize more oil tankers from Venezuela.

Wednesday's tanker seizure was the first of its kind of an oil cargo or tanker from Venezuela, and it comes as the Trump administration has led a large military buildup in the Caribbean.

White House spokeswoman Karoline Leavitt told reporters she did not comment on the reports of future actions on oil tankers, focusing instead on the sanctions package.

"We're not going to stand by and watch sanctioned vessels sail the seas with black market oil, the proceeds of which will fuel narcoterrorism of rogue and illegitimate regimes around the world," Leavitt said.

A reduction or halt in Venezuelan oil exports would certainly strain the Maduro government's finances.

Source: DW

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Justin

Economic

The total value of building permits increased 14.9% from the month before to a seasonally adjusted 13.82 billion Canadian dollars, the equivalent of $10.03 billion, Statistics Canada said Friday.

That was much stronger than the 1.4% drop expected for the month by economists, according to TD Securities, and builds on the upwardly revised 5.9% rise in permits in September.

On a year-over-year basis, the overall value of permits issued last month was up 9.6%.

Building permits provide an early indication of construction activity in Canada and are based on a survey of 2,400 municipalities, representing 95% of the country's population. The issuance of a permit doesn't guarantee that construction is imminent.

Housing starts across Canada slumped 17% in October from a month prior on a seasonally adjusted annualized basis, rolling back a 14% increase in September, Canada Mortgage and Housing Corp. said last month. The six-month moving trend for starts was down 3.0% for the month.

Statistics Canada's data showed construction intentions in the residential sector climbed 14.6% from the previous month to C$8.56 billion, following a 6.6% rise in the value of permits the month before.

Intentions to build multifamily dwellings surged 21.3%, buoyed by the province of Ontario, and specifically the Toronto metropolitan area. Intentions for single-family homes rose a more modest 1.8%, with the gains being primarily attributed to Alberta.

Across Canada, a total of 24,300 multi-family dwellings and 4,100 single-family homes were authorized in October, marking a 13.6% increase from the previous month. Year-to-date, the average number of multi-family dwellings authorized stood at 21,500 a month, up from 19,100 during the same period last year.

Permits for nonresidential buildings were also strongly higher for the month, rising 15.4% to C$5.25 billion, the data agency said. That included a rise in permits for commercial and institutional buildings, more than making up for a dip in industrial plans.

Source: TradingView

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James Whitman

Central Bank

Economic

Federal Reserve Bank of Cleveland President Beth Hammack said she would prefer interest rates to be slightly more restrictive to keep putting pressure on inflation, which is still running too high.

"Right now, we've got policy that's right around neutral," Hammack said Friday during an event in Cincinnati. "I would prefer to be on a slightly more restrictive stance to help continue to put pressure" on the inflation side of the central bank's mandate, she said.

Fed officials delivered a third consecutive rate reduction earlier this week, but a large group of regional bank presidents signaled they opposed the cut. Two officials, Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeff Schmid, officially dissented against the move, saying they preferred to leave rates unchanged. And six policymakers penciled in rate projections suggesting they also opposed a cut.

Hammack didn't vote on monetary policy decisions this year but will vote in 2026. Asked if she supported this week's rate reduction, she didn't directly answer the question but said it was a "complicated decision" since officials are facing pressure on both sides of their mandate.

The Cleveland Fed chief cautioned last month that lower interest rates could prolong the period of above-target inflation. She has previously said that she opposed the rate cut in October and saw little reason for a reduction in December.

Hammack said she is grateful policymakers will receive key data on prices and employment in the coming weeks that should help them understand the trends in the economy — after their publication was delayed by a federal government shutdown. She also said the Fed doesn't have the appropriate tools to address structural changes in the economy.

Inflation has been running above the Fed's 2% target for several years, and has recently been stuck closer to 3%, Hammack said.

Source: Bloomberg

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Gerik

Economic

Commodity

December Decline Reflects Dual Price and Currency Headwinds

According to Reuters calculations based on industry and official data, Russia’s hydrocarbon revenues are expected to fall sharply in December to 410 billion roubles nearly halving from the same month a year earlier. This would bring monthly earnings down to levels not seen since August 2020, when pandemic-related demand collapse drove oil prices to historic lows.

This slump is primarily attributed to two converging factors: weakening global crude prices and a strengthening rouble. The price of Russian oil, converted into roubles for tax purposes, dropped 17.1% from October to 3,605 roubles per barrel in November, sharply compressing government revenue.

Full-Year Shortfall Undermines Fiscal Planning Amid Rising War Costs

The sharp monthly decline adds to a broader trend of fiscal underperformance. Total oil and gas revenues for 2025 are now expected to fall to 8.44 trillion roubles below both the Finance Ministry’s October revision of 8.65 trillion and far short of the original projection of 10.94 trillion roubles. The shortfall underscores the fragility of Russia’s energy-dependent budget at a time when military and security spending continues to rise due to its ongoing conflict in Ukraine.

Hydrocarbon revenues account for roughly a quarter of Russia’s federal budget, meaning the drop will significantly constrain fiscal maneuverability. With Western sanctions limiting financing options and restricting technology imports, the narrowing budget surplus places added pressure on the Kremlin to either curb spending or tap into reserves.

Geopolitical Implications: Economic Leverage as a Tool of Pressure

The deteriorating revenue picture highlights the success of Western strategies aimed at weakening the Russian economy to undermine its war effort. The U.S. and EU have repeatedly stated their goal of cutting off Moscow’s primary revenue streams in order to force de-escalation in Ukraine. The latest figures suggest that sanctions, price caps, and shifts in global oil demand are beginning to bite.

Still, Russia remains the world’s second-largest oil exporter and has found alternative buyers in Asia, particularly China and India, although often at discounted rates. Nonetheless, declining margins from these deals combined with falling global benchmarks are constricting Russia’s fiscal space more than in previous years.

2026 Outlook Clouded by Energy Market Volatility and War Spending

With the Finance Ministry set to publish its final December revenue estimate on January 14, all eyes will be on whether the current revenue slump stabilizes or worsens. Given that crude markets remain under pressure from fears of oversupply and weakening demand, and with the rouble likely to remain firm under limited capital outflows, Russia’s near-term fiscal prospects appear bleak.

Unless energy prices rebound or Russia secures higher-priced contracts outside the Western-dominated financial system, its ability to finance prolonged military operations or sustain domestic spending commitments will face increasing constraints heading into 2026. The Kremlin’s economic resilience is once again being tested not just by sanctions, but by the global market forces reshaping energy economics.