Brazil Holds Rate at 15%, Signals March Cut

The Federal Reserve has hit the pause button, keeping its benchmark interest rate unchanged in the 3.50%-3.75% range. This decision follows a period of significant easing that saw the central bank cut rates by a total of 1.75 percentage points since September 2024.

This pause gives policymakers time to observe how a year of rate reductions is affecting the economy. While the current federal funds rate is substantially lower than its peak of 5.25%-5.50% seen from July 2023 to September 2024, it remains well above the pre-pandemic average of 1.7% (2017-19).

Market expectations, based on futures pricing, suggest the Fed isn't finished. Traders are betting on an additional 0.5 percentage point cut later this year, followed by a period of stable rates throughout 2027.

US Economic Outlook Brightens

One major reason for the Fed's pause is an improving economic picture. In its official statement, the central bank upgraded its assessment of economic expansion from "moderate" to "solid." Fed Chair Jerome Powell echoed this sentiment, noting that the "outlook for economic activity has improved."

This optimism is fueled by several key factors:

• Strong consumer activity: Retail sales data for September and October came in strong.

• AI-driven investment: Artificial intelligence is expected to drive massive capital spending in 2026, continuing a trend from 2025.

With growth appearing robust, the immediate pressure to cut rates further has eased.

Labor Market Weakness Creates a Puzzle

Despite the positive growth signals, the U.S. labor market continues to show signs of weakness, creating a complex puzzle for the Fed.

Nonfarm payroll employment appears to have contracted at a 0.4% annualized pace in the final three months of the year, factoring in anticipated benchmark revisions. Meanwhile, the unemployment rate has been climbing, averaging 4.5% over the past three months compared to 4.1% in the first quarter of 2025.

Powell Navigates Conflicting Economic Signals

Chair Powell acknowledged the conflict between strong GDP figures and weak employment data. He noted that historically, when these two indicators diverge, the labor market figures often prove to be the more accurate predictor of the economy's true path.

However, another possibility is at play. The economy could be experiencing a productivity boom, potentially coupled with a shrinking labor supply from reduced immigration. In this scenario, it's possible for the economy to grow at a solid pace even while job creation is weak.

For now, the Fed seems comfortable waiting for more clarity. As long as the risk of a recession remains low and unemployment doesn't continue to climb, policymakers are in no rush to act. Still, we expect two more rate cuts before the end of the year.

Jeffrey Gundlach, the CEO of DoubleLine Capital, predicts the Federal Reserve will hold interest rates steady for the remainder of Jerome Powell's term as chair, citing a more balanced economic picture.

"I think I would bet pretty heavily that there's not another rate cut under Jay Powell," Gundlach said in a CNBC interview. He believes Powell is actively signaling that while inflation is slightly elevated, the situation is less concerning than it was a few months ago and that the unemployment rate has stabilized.

Powell's term as chair is set to expire after the Fed's policy meetings in March and April, with a new chair expected to preside over the June meeting following Senate confirmation.

The Fed's Current Policy Stance

At its latest meeting, the central bank maintained its benchmark overnight lending rate in a range of 3.5% to 3.75%. The committee's post-meeting statement characterized economic activity as "expanding at a solid pace" and noted that the unemployment rate was showing signs of stabilization.

During his press conference, Powell remarked, "I think, and many of my colleagues think, it's hard to look at the incoming data and say the policy is significantly restrictive at this time."

Interpreting the Fed's Dual Mandate

Gundlach believes Powell's recent comments indicate a shift in focus. "He's talking about less tension between both sides of the mandate, and I really agree with that," Gundlach explained, referring to the Fed's twin goals of achieving price stability and maximum employment. "And I think he's setting the stage."

This view contrasts with current market expectations. Trading in Fed funds futures suggests that investors are still pricing in two quarter-percentage-point rate cuts by the end of 2026, according to the CME FedWatch Tool.

Investment Implications and Global Strategy

Based on his outlook, Gundlach also shared his preference for international investments. He recommended that investors consider allocating 30% to 40% of their portfolios to unhedged international equities.

According to Gundlach, such positions are well-positioned to gain from a potential rise in local currencies against the U.S. dollar.

The Federal Reserve has officially pumped the brakes, ending its streak of three consecutive interest rate cuts. On Wednesday, the Federal Open Market Committee announced it would hold the federal funds rate steady in its current range of 3.5% to 3.75%.

Fed Chair Jerome Powell signaled a clear shift to a "wait-and-see" approach. After a series of "maintenance" cuts designed to safeguard against a shaky labor market, the central bank now believes it can afford to stay on the sidelines. Powell pointed to stabilizing job gains and inflation that, while still slightly high, is behaving as expected.

"If you look at the incoming data since the last meeting, [there is] clear improvement in the outlook for growth," Powell explained. "Inflation performed about as expected, and… some of the labor market data came in suggesting evidence of stabilization."

A Split Decision Inside the Fed

The decision to hold rates was not unanimous. Two governors appointed by President Donald Trump, Stephen Miran and Christopher Waller, voted against the consensus, favoring another quarter-point rate cut. This marked Miran's fourth time dissenting from the committee's decision.

The internal division highlights ongoing debates about the economy's direction. Powell himself had previously advocated for a larger half-point cut. With his term as chair ending this Saturday, the committee's future direction remains a key question for markets.

In its official statement, the committee expressed growing confidence, noting, "Available indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, and the unemployment rate has shown some signs of stabilization. Inflation remains somewhat elevated."

Powell on Politics, Models, and His Future

With only two meetings left before his term as chair concludes in May, Powell faced questions about his legacy and the institution's future. He remained tight-lipped on his personal plans, refusing to say whether he would stay on as a Fed governor until his term ends in 2028. "I have nothing for you on that," he told reporters.

He used the same phrase to deflect questions about grand jury subpoenas related to a Justice Department investigation into the Fed's building-renovation project.

A Warning on Central Bank Independence

While avoiding personal commentary, Powell was clear in his advice for his successor: stay out of politics. He stressed the need for the Fed to remain independent from political pressure to maintain its credibility.

"When central banks lose independence from political pressures, it's hard to restore the credibility of the institution," he warned, adding that he hopes and believes the Fed will not lose its independence. He clarified that engaging with lawmakers is a necessary part of democratic accountability, but the next chair must "not get pulled into elected politics."

Defending the Fed's Playbook

Powell also mounted a robust defense of the Federal Reserve's staff and its economic models, which have faced criticism for being outdated. He called the staff "the most qualified group of people you will ever work with" and asserted that the Fed is well aware that technology may be driving productivity higher.

He addressed the recent conflict between strong GDP growth—3.8% in Q2 and 4.4% in Q3 of 2025—and slowing job creation. In his view, the jobs data often provides a more accurate picture of the underlying economy, suggesting GDP figures might be overstating its strength.

He dismissed critiques of the Fed's forecasting tools, arguing that no model can perfectly predict an economy subject to massive shocks like a pandemic or a trade war. He then issued a direct challenge to critics who believe they can do better: "Bring them on."

Ultimately, Powell concluded the day with a frank self-assessment of his deliberately reserved performance. "I'm tempted to call this the 'Nothing for you' press conference," he said.

Source: Yahoo Finance

Gold and silver prices are pushing into record territory, but the rally shows no signs of fatigue. The core driver is a sustained weakness in the U.S. dollar, which is fueling a significant shift in investor sentiment toward hard assets.

With silver surging past $110 an ounce and gold trading around $5,300, markets are reacting to persistent geopolitical uncertainty and economic volatility tied to President Donald Trump's policy agenda. This has led analysts to question the long-term viability of the U.S. dollar as the world's primary reserve currency.

De-Dollarization Fuels Precious Metals Rally

While gold may be due for a short-term pullback, experts believe the broader upward trend is firmly established.

Julia Khandoshko, CEO of Mind Money, identified several converging factors supporting gold's appeal as a safe-haven asset:

• An acceleration of de-dollarization globally.

• Steady demand from developing countries.

• Continued global monetary issuance.

• Concerns over U.S. debt sustainability.

• Growing geopolitical tensions, such as new tariffs.

• Perceived pressure on the Federal Reserve's independence.

This momentum builds on a wave of "Sell America" sentiment that first appeared in April 2025, when Trump enacted aggressive global tariffs to shrink the U.S. trade deficit.

A Systemic Shift in Global Finance

The rising importance of gold is becoming increasingly visible in the composition of global reserves. According to Linh Tran, Market Analyst at XS.com, this signals a fundamental change in the financial landscape.

"It becomes clear that gold is rising not merely due to market anxiety, but also because confidence in the global monetary–fiscal order is shifting toward a more cautious stance," Tran noted. "This does not appear to be a short-lived shock, but rather a process of re-positioning gold's role within the system."

Tran argues that gold's future trajectory won't depend on a single factor like interest rates but on the overall stability of the global monetary and fiscal framework.

Analyzing the U.S. Dollar's Steep Decline

The dollar's poor performance has been a key catalyst. In 2025, the U.S. dollar index recorded one of its worst years in over five decades, falling approximately 9.4% from a December 2024 close near 108.5 to around 98.3.

That downward trend has continued into the new year, with the dollar shedding nearly 2% in January. This week, the index touched a fresh multi-year low of 95.55 points.

President Trump, however, has expressed no concern over the currency's slide. "I think it's great," he told reporters in Iowa on Tuesday. "I think the value of the dollar — look at the business we're doing. The dollar's doing great."

Weaker Dollar Stokes Inflation and Uncertainty

Analysts caution that the consequences of a weaker dollar are complex and reinforce gold's role as both an inflation hedge and a store of wealth.

"While a softer USD benefits exporters... it can increase inflationary pressures," explained Aaron Hill, Chief Market Analyst at FP Markets. "When the USD declines, if you want to buy something abroad, it will cost more as the dollar buys less. For business, for those who import materials, for example, they will also face higher costs, which they can pass on to customers, hence inflation."

Hill added that Trump's unpredictability continues to unsettle markets, prompting investors to reduce their exposure to U.S. assets and adding further downward pressure on the dollar.

A Broader Crisis in Fiat Currencies

Beyond the dollar, some experts see a wider erosion of confidence in fiat currencies altogether. Recent turmoil in Japanese bond markets has sparked concerns about liquidity risks across the global financial system.

Guy Wolf, Global Head of Market Analytics at Marex, suggested that fears of global currency debasement could support gold for years to come.

"Private investors are returning to gold as both a hedge against currency debasement and a form of insurance against geopolitical risk, equity market overvaluation, and broader macro uncertainty," Wolf said. "Gold's rise is not simply a function of US dollar weakness; rather, it reflects a broader erosion of confidence in fiat currencies globally, with gold appreciating in virtually every currency."

What's Next for Gold Prices?

Looking ahead, the outlook for gold remains strong. Nitesh Shah, Head of Commodities & Macroeconomic Research at WisdomTree, believes prices could climb significantly higher before the year ends.

He noted that his firm's models suggest investors should allocate between 15% and 20% of their portfolios to gold. Given the enormous size of the global bond market, even a small shift in asset allocation could have an outsized effect on the metal's price.

"I can see why gold prices are where they are," Shah concluded. "There is a massive threat to the status quo and the global monetary system if the U.S. dollar remains the world's reserve currency."

Oil traders are paying a premium for bullish call options, a clear signal they are hedging against a potential new conflict between the United States and Iran. This market action has created a sustained "call skew," where the price of bullish options outpaces bearish ones.

For the global benchmark Brent crude, this skew has been in place for 14 consecutive sessions. The equivalent U.S. marker has seen the same pattern for 13 straight trading days. These are the longest such streaks since late 2024, a period marked by Israeli attacks on Iranian military installations.

Geopolitical Tensions Fuel Market Anxiety

The anxiety stems from escalating tensions in the Middle East. Recent unrest in Iran has reportedly led to thousands of deaths, provoking an international outcry against Supreme Leader Ayatollah Ali Khamenei's regime.

The situation drew a sharp warning from U.S. President Donald Trump, who threatened "strong action" if the killings continued. This week, Trump added that a "big armada" was heading to the region because of Iran, though he expressed hope it would not need to be used.

Options Market: The Go-To Hedging Tool

For years, the options market has been the primary venue for traders to place bets on heightened geopolitical risk in the Middle East. This trend became especially prominent after Hamas's attack on Israel in October 2023.

A similar pattern emerged last year when the U.S. struck Iran. Premiums for call options soared before collapsing once it became clear that oil facilities were not targeted.

"The focus on Iran continues," said Arne Lohmann Rasmussen, chief analyst at A/S Global Risk Management. "The market will likely remain nervous over the coming days."

Trading Data Reveals a Surge in Bullish Bets

The current uncertainty is driving a significant accumulation of bullish options contracts. According to a Bloomberg analysis of ICE Futures Europe data, open interest in Brent call options has grown this month at its fastest rate in at least six years. This follows the busiest single day of trading ever recorded for Brent crude call options, which occurred earlier this month.

Other indicators point in the same direction. Hedge funds have increased their net-bullish wagers on crude oil to the highest level since August, and several key volatility gauges have reached multi-month highs in recent weeks.

What's at Stake: Iran's Daily Oil Supply

A potential U.S. military intervention could directly threaten Iran's oil production, which currently stands at roughly 3.3 million barrels per day.

The risk of a major supply shock is being taken seriously across the industry. Consultant Rapidan Energy Group recently increased its probability estimate that an Iranian retaliation to potential U.S. strikes would cause a substantial disruption to Gulf energy flows, raising the odds from 15% to 20%.