Bessent Sees Room for a Future Revamp of the Fed´s 2% Target

Central Bank

Economic

Summary:

The discussion could potentially be framed around a switch to 1.5% to 2.5% or 1% to 3%, Bessent suggested in the interview, which was posted on Dec. 22. “There is a very robust conversation” to be had, he said.

Treasury Secretary Scott Bessent backed the idea of reconsidering the Federal Reserve’s 2% inflation target once the US has sustainably brought price increases back down to that pace.

“Once we are back to 2 — which I think will be in sight — then we can have a discussion: Is it much smarter to have a range?” Bessent said in an interview on the . “Once we re-anchor to the target, then we can talk about a range.”

Fed policymakers in 2012 formally and publicly adopted the current 2% target, which is shared by many central banks around the world. Bessent said that the idea of “decimal-point certainty is just absurd.” But he said shifting the target at a time when inflation is running faster than that would risk giving the impression that “when you’re above a level, you’ll always fudge upward.”

The interview was recorded after the Dec. 18 release of the November consumer price index, which showed a 2.7% increase in the level from a year before. The Fed uses a separate gauge, the so-called PCE price index. The PCE climbed 2.8% over the 12 months to September, the most recent reading showed.

People ‘Hurting’

“It’s very difficult to re-anchor until you meet the target and maintain credibility,” Bessent said. He also acknowledged affordability concerns among households — angst that surfaced in off-cycle elections held in November that saw Republican losses.

The Treasury chief said that “we understand that the American people are hurting.” The price level “has gotten very high,” he said, blaming that surge on the Biden administration. Inflation is now “starting to roll down,” thanks in part to declines in rents that had — he argued — been driven up by a jump in undocumented immigrants.

While some economists said the most recent CPI report likely contained measurement issues thanks to federal staff being furloughed during the government shutdown of October and early November, Bessent said he thought “it was a pretty accurate number.” He said while some components, including energy, recorded an increase, observable real-time figures showed they’re coming down.

Bessent also indicated that stabilizing the budget deficit could provide an argument for lower interest-rate levels. He cited an example from Germany before the days of the euro, where the Bundesbank agreed to “foam the runway” and decrease rates in return for the government pursuing a not-profligate “reasonable fiscal balance.”

German Model

“That’s something that we could be doing here,” he said. Germany’s central bank and government “would work with each other hand-in-hand,” he said. He also noted that, before World War II, the Treasury Department “had a seat at the table on the Federal Reserve.”

The Treasury secretary said, “If we can stabilize the budget deficit, even bring it down, then that will contribute to disinflation.”

Bessent, who has been overseeing the process for President Donald Trump selecting a candidate to succeed Federal Reserve Chair Jerome Powell, reiterated his criticism of the US central bank expanding its balance sheet too much and too long after Covid hit.

“Absolutely, large-scale asset purchases should be part of the so-called central bank toolkit,” he said. He also supported the Fed’s emergency powers to aid a strategic industry if needed, saying “it would not have behooved anyone” for the airline industry to collapse during Covid. As for the broader so-called quantitative initiative, “I think that the duration went on much, much too long.”

Source: Bloomberg

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Manuel

Political

The US Supreme Court refused to let President Donald Trump start deploying National Guard troops in Chicago, dealing a setback to his drive to use the military in liberal cities across the country.

Rejecting a Trump request in a 6-3 decision, the court on Tuesday left in force a judge’s ruling that has blocked the deployment since Oct. 9.

“At this preliminary stage, the government has failed to identify a source of authority that would allow the military to execute the laws in Illinois,” the majority said. The government hadn’t shown the president could legally “federalize the Guard in the exercise of inherent authority to protect federal personnel and property in Illinois.”

The case marked the high court’s first look at Trump’s fight to dispatch troops to cities where his immigration crackdown has drawn widespread protests. The ruling means Trump, at least for now, can’t deploy hundreds of troops in the Chicago area.

The court deliberated over the case for more than two months, an unusually lengthy review for a request that claimed government officials were facing an imminent threat. Trump told the justices in his Oct. 17 application that troops were needed “to prevent ongoing and intolerable risks to the lives and safety of federal personnel.”

‘Simply Unreliable’

In issuing a temporary restraining order against Trump, US District Judge April Perry said the administration hadn’t shown that a protest outside a Chicago-area Immigration and Customs Enforcement facility had risen to a level that would warrant a military deployment.

Perry said the Department of Homeland Security’s characterization of the Chicago area as ridden with violence couldn’t be squared with facts on the ground, including the assessment of local law enforcement agencies. At an Oct. 9 hearing she pointed to “the growing body of independent and objective evidence that DHS’s perceptions of events are simply unreliable.”

The Chicago-based 7th US Circuit Court of Appeals left Perry’s order largely intact.

Chicago became less of an immigration flashpoint in the weeks after Perry issued her ruling. The administration shifted resources to other cities, first with an arrest blitz in Charlotte, North Carolina, and then with a surge in New Orleans. More recently, Border Patrol has picked up again in Chicago with the return of Gregory Bovino, the agency’s at-large commander.

Under federal law, the president can call state National Guards into service when the US is facing a “rebellion or danger of rebellion” or the president “is unable with the regular forces to execute the laws of the United States.”

The court suggested last month that it was focusing on the latter provision, asking the two sides to file briefs discussing whether “regular forces” refers to active-duty troops.

‘Judicially Micromanaging’

Trump contends military force is needed to protect federal immigration agents from what he claims are violent protests. Government lawyers said in a Supreme Court filing the 7th Circuit was “controlling the military chain of command and judicially micromanaging the exercise of the president’s commander-in-chief powers, including the decision about which military forces the president can deploy.”

Justice Samuel Alito dissented from the high court’s ruling Tuesday, saying he had “serious doubts” about the majority’s reasoning.

“The Court fails to explain why the President’s inherent constitutional authority to protect federal officers and property is not sufficient to justify the use of National Guard members in the relevant area for precisely that purpose,” Alito wrote, joined by Justice Clarence Thomas. Justice Neil Gorsuch wrote a separate dissent.

Democrats say Trump is engaging in a power grab and ignoring the largely peaceful nature of the protests.

“State and local law enforcement officers have handled isolated protest activities in Illinois, and there is no credible evidence to the contrary,” Illinois and Chicago officials told the Supreme Court.

Perry said in October that tactics used by immigration agents in Chicago so far have only increased the risk of protests, and “evidence demonstrates that the deployment of the National Guard will lead to civil unrest.”

The case is one of several over Trump’s attempts to deploy the National Guard. The administration is appealing a judge’s order that blocked Trump from deploying National Guard troops in Portland, Oregon, a city he has claimed without evidence is “burning to the ground.” A different judge has ruled that he can’t deploy the National Guard in Memphis.

In addition, a federal judge in Washington, DC, ruled that Trump’s deployment of troops there was probably unlawful, though an appeals court ruled last week that they can remain there for now.

Source: Bloomberg

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Manuel

Stocks

Economic

Retail inflows into U.S. stocks are set to hit a record in 2025, as individual investors become a major force behind a rally that is likely to extend into the next year on hopes of interest rate cuts, analysts said.

The amount of cash retail investors poured into U.S. stocks so far in 2025 is up 53% from $197 billion a year earlier and 14% higher than the $270 billion hit at the height of the retail trading frenzy in 2021, according to J.P.Morgan analysts.

Retail trading, meanwhile, accounted for 20–25% of total activity this year, touching a record high of about 35% in April, according to separate trading data from J.P.Morgan.

Individual investors snapped up high-quality stocks at discounts during selloffs, most notably after U.S. President Donald Trump's "Liberation Day" tariffs triggered a global meltdown in April, helping push the S&P 500 (.SPX) to fresh records. The benchmark index is up about 16% this year.

"Retail investors are here to stay, especially for 2026. They made money this year, they like to trade stocks, they have the applications to do so. We will continue to see them being a good presence," said Steven DeSanctis, small- and mid-cap strategist at Jefferies.

Retail participation in the stock market has grown steadily over the years as the rise of low-cost, no-commission brokerages such as Robinhood (HOOD.O) and Interactive Brokers (IBKR.O) has made it easier and cheaper for average Americans to access the market.

The trend got wider notice in 2021 as many Americans who were homebound during the COVID-19 pandemic and were flush with cash used mobile trading platforms to bet on everything from GameStop (GME.N) to Big Tech. Retail Investors to Have More Sway Over Wall Street After Record Year_1

Retail Investors to Have More Sway Over Wall Street After Record Year_1

AI plays such as Nvidia (NVDA.O) and Palantir Technologies (PLTR.O) were top favorites this year, according to retail brokerage data and executives, with the latter more than doubling in value as small-time traders bought the dip when institutional investors stepped back on valuation concerns.

Tesla shares (TSLA.O), another top retail favorite, touched a record high on December 17, their first since the end of 2024.

"The two most active stocks on our platform are typically Nvidia and Tesla. Those are just two examples of individual investors seizing the narrative and in many cases forcing institutional investors to play along," said Steve Sosnick, chief strategist at Interactive Brokers.

Quantum computing firms, uranium miners, metal miners and rare earth companies also saw substantial retail interest, as investors became more "thematic" in their approach.

RETAIL TRADERS INCREASINGLY PREFER ETFS

A key feature of retail trading in 2025 was the increasing preference for exchange-traded funds (ETFs) tracking equity indexes, cryptocurrencies and commodities, according to executives at major trading platforms.

"Investors continue to be attracted to the ETF technology. It trades throughout the day - it's tax efficient, it's transparent," said Bryon Lake, global co-head of Third-Party Wealth at Goldman Sachs Asset Management.

Direxion's Daily Semiconductor 3X Bull and 3X Bear ranked among the top five ETFs by dollar volume on eToro, said Bret Kenwell, U.S. investment analyst with the trading platform.

Retail investors are making more informed trades now as indicated by fewer and shorter so-called "meme frenzies," said Joe Mazzola, head of trading and derivatives at Charles Schwab.

"Retail has been a little bit more in tune to the market dynamics this year," he added.

POTENTIAL INTEREST RATE CUTS SEEN AS KEY CATALYSTS

Potential rate cuts by the Fed are expected to continue to boost markets next year, keeping up the retail momentum in 2026, according to analysts and brokerages.

Elevated stock market volatility may trigger dips that could also pull in individuals willing to wager on a bounce back, although recent evidence points to less enthusiasm about such opportunities than they have been in the past. Retail Investors to Have More Sway Over Wall Street After Record Year_2

Retail Investors to Have More Sway Over Wall Street After Record Year_2

Reuters last week reported that Nasdaq (NDAQ.O) is planning to submit paperwork with the U.S. Securities and Exchange Commission to roll out round-the-clock stock trading, a move analysts believe can further accelerate retail momentum.

"We're in a kind of golden age of retail investing with better access to knowledge, to the markets themselves and advanced trading platforms," said David Russell, global head of market strategy at TradeStation.

Still, with doubts continuing to linger around the AI names that have dominated the market this year, analysts said they did not expect the coming year to top 2025's record as investors may consider broadening their portfolios.

Financials, communications, discretionary, energy, miners and gold mining ETFs could do well, eToro's Kenwell said.

"But ultimately, retail loves tech so that is an area they will continue to come back to in 2026, particularly if we do see any sort of volatility."

Source: Reuters

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Manuel

Forex

Central Bank

Donald Trump said he expects his Federal Reserve chair to lower interest rates if the economy is doing well, the latest signal that the president is eager for a nominee committed to borrowing cost cuts as he nears an announcement of his choice to replace Jerome Powell.

“I want my new Fed Chairman to lower Interest Rates if the Market is doing well, not destroy the Market for no reason whatsoever,” Trump said in a social media post Tuesday. “Anybody that disagrees with me will never be the Fed Chairman!”

Trump has repeatedly said he’s interested in breaking recent trends, where promising economic data is sometimes met by a market selloff due to concerns over inflation and corresponding hikes by the Fed.

“In the old days, when there was good news, the Market went up,” Trump wrote. “Nowadays, when there is good news, the Market goes down, because everybody thinks that Interest Rates will be immediately lifted to take care of ‘potential’ Inflation.”

Tuesday bucked the trend described by the president. The Bureau of Economic Analysis reported that inflation-adjusted gross domestic product increased at a 4.3% annualized pace in the third quarter, higher than all but one estimate in a Bloomberg survey. But the S&P rose for the fourth consecutive day, and was set for a record close.

The president’s latest commentary comes as he is looking to new leadership at the Fed to help reduce borrowing costs, as he increasingly feels political pressure to address voter concerns over affordability. Trump has repeatedly said lower rates could help the housing market, and that he wants to be consulted by his eventual central bank pick on how to navigate rate decisions.

The president last week said he had narrowed his list for Fed chair nominees to “three or four” candidates and expected to have a decision pretty quickly, with an announcement “over the next couple of weeks.”

Trump has indicated Kevin Hassett, director of the National Economic Council, and Kevin Warsh, a former Fed governor, were among the frontrunners for the job. He’s also interviewed — and praised — Fed Governor Christopher Waller.

“I think every one of them would be a good choice,” Trump said.

The Fed earlier this month lowered its benchmark rate to between 3.5% and 3.75%, its third cut in as many meetings. Three central bank officials dissented from the decision and the Federal Open Market Committee remains undecided about further reductions. Trump has previously called for the central bank to cut benchmark rates to around 1%, or perhaps lower.

Source: Bloomberg

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Manuel

Economic

Forex

The dollar is heading for its worst annual performance in eight years, and the options market is signaling that traders are preparing for more downside in the final sessions of 2025 and beyond.

The Bloomberg Dollar Spot Index fell as much as 0.4% on Tuesday, touching the lowest since early October, before trimming its loss after a report showed US economic growth accelerated last quarter. The greenback index is down about 8% this year, putting it on track for its worst year since 2017, and the options market points to further declines in the coming months.

“My outlook outlook for 2026 is more continuation of the bear market, but a more modest one,” said Paresh Upadhyaya at Pioneer Investments. “The key risk to this view is US growth exceptionalism returning and today’s third quarter GDP highlights this risk.” Dollar’s Worst Drop Since 2017 Has Further to Go, Options Signal_1

Dollar’s Worst Drop Since 2017 Has Further to Go, Options Signal_1

Expectations that Federal Reserve will lower borrowing costs further while many other major central banks are close to being done with their easing cycles have weighed on the greenback. A pattern of losses in December is also working against the US currency, which is down more than 1% this month.

Options pricing has turned more negative. So-called risk reversals, which depict market positioning and sentiment, show that options traders are the most bearish on the dollar in three months. Data from the Depository Trust & Clearing Corporation shows that the euro and the Australian dollar have been the main vehicles for expressing those bearish dollar views in recent sessions.

“The dollar outlook remains comfortably negative,” wrote Ipek Ozkardeskaya, senior analyst at Swissquote, in a note published Tuesday. “Bullish calls on the dollar are rare.”

Ozkardeskaya said that concerns around fiscal discipline and trade tensions are also acting as headwinds. Still, she warned the dollar is vulnerable to a sharp rebound if upcoming data releases prompt a hawkish reassessment of Fed expectations.

The US economy expanded in the third quarter at the fastest pace in two years, bolstered in part by resilient consumer and business spending, a Bureau of Economic Analysis report showed Tuesday. Inflation-adjusted gross domestic product increased at a 4.3% annualized pace, which was higher than all but one forecast in a Bloomberg survey and followed 3.8% growth in the prior period.

Separately, Canada’s economy grew in November after a drop in October. The Canadian dollar jumped after the report to reach the strongest level since July against the greenback.

The Swedish krona, the best performer among Group-of-10 peers this year, rose to the strongest level since February 2022 on Tuesday.

Source: Bloomberg

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Justin

Central Bank

The Japanese government intends to advance the digital securitization of local government bonds via blockchain, proposing legislation in 2026, as reported by CoinDesk citing Nikkei News..

This initiative could streamline bond issuance and settlement, potentially eliminating intermediaries. Market response is still uncertain, with no direct involvement or reactions from key players yet identified.

Potential Shift in Municipal Financing Methods

It appears that you are requesting specific quotes related to Japan's initiative to promote digital securitization of local government bonds via blockchain. However, as you've noted in your search results, no primary source statements or direct quotes from key players, officials, or thought leaders have been identified regarding this topic.

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Japan's initiative to digitize local bonds could mirror China's use of blockchain for municipal financing, underscoring a strategic shift in public sector funding.

In the past, such moves to digitize financial instruments have illustrated significant technological shifts in public financing strategies. Blockchain offers enhanced transparency and efficiency, yet no significant discussions from regulatory bodies, like the SEC or CFTC, have been issued.

Experts argue that if these digital bonds are implemented successfully, they could potentially redefine local financing models, offering integrated financial models previously limited by traditional systems. The extent of impact, from financial markets to the regulatory landscape, remains contingent on subsequent legal and technological developments.

Source: CryptoSlate

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Justin

Commodity

Libya's vast fossil fuel potential and "investor-friendly reforms" are attracting global energy firms despite the inherent political risks, a boost for the oil-rich African nation.

The latest bid round from the country offers 22 blocks with an estimated 10 billion barrels of available resources and 18 billion barrels yet to be discovered, according to a new report from industry consultancy Enverus Intelligence Research.

"Libya's new licensing round marks a pivotal moment for the country's energy sector," Tom Richards, senior regional manager at Enverus, said in Tuesday's report. "Enhanced fiscal terms, simplified cost recovery and clearer profit sharing are already attracting serious interest from supermajors and national oil companies."

Still, political instability and infrastructure challenges must be addressed to sustain growth, and if state-controlled National Oil Corporation is to increase production by more than 40% to meet its 2030 target of 2 million barrels per day, the report cautioned.

The nation is split between an internationally recognized government in the west and a rival administration backed by military strongman Khalifa Haftar in its oil-rich east. Sporadic feuds have disrupted energy flows and threatened to spiral into outright war, leaving many investors wary.

Libya, a member of the Organization of the Petroleum Exporting Countries, is trying to bring back oil majors that left following the 2011 fall of longtime dictator Moammar Qaddafi, as the country has struggled to quell unrest ever since.