DOJ Probe Into Powell Adds New Risk to Fed Policy

The era of synchronized monetary policy is ending. After years of moving in lockstep to combat post-pandemic inflation, the world's major central banks are now entering a period of significant divergence, creating a complex and uncertain outlook for the global economy.

According to forecasts from Bloomberg Economics, the next year will see a wide spectrum of interest rate policies across advanced economies as central bankers navigate mixed economic signals and rising political volatility, particularly from the United States.

The Federal Reserve: A Lone Path to Easing?

All eyes are on the U.S. Federal Reserve, which faces a unique set of challenges. Policymakers must interpret conflicting economic data while contending with the potential for a new chair appointed by a president openly demanding rate cuts and applying legal pressure on the institution.

Bloomberg Economics projects the Fed will ease more aggressively than the market consensus, which currently anticipates just two cuts in 2026. This view is based on the expectation that a weakening labor market will soften the Fed's hawkish stance.

Jamie Rush, director of global economics at Bloomberg Economics, notes that this U.S. policy shift won't be mirrored elsewhere. "The world's most important central bank is likely to cut by more than markets expect," he said. "Deep U.S. rate cuts won't be replicated by other major central banks."

A Fragmented Global Policy Landscape

Stripping out the U.S., the combined interest rate gauge for advanced economies is expected to end the year with little change, highlighting the growing split in policy trajectories. The forecast for key central banks reveals a fractured approach:

• Bank of England (BOE): Expected to cut rates far less than the Fed.

• European Central Bank (ECB): Believed to be finished with its rate-cutting cycle.

• Bank of Japan (BOJ): Moving in the opposite direction, toward tightening.

• Potential Hikes: Canada, Japan, and Switzerland may see rate increases.

• Holding Steady: The euro zone is projected to keep borrowing costs stable.

• Further Cuts: Australia and New Zealand are likely to lower rates.

Meanwhile, central banks in emerging markets from Brazil to Nigeria are expected to implement significant rate reductions. Geopolitics, trade disputes, and political developments in the U.S. remain key variables that could easily disrupt these forecasts.

Is the US Productivity Surge a Statistical Mirage?

While monetary policy is a key focus, a debate is also brewing over the strength of the U.S. economy itself. Official data showed U.S. productivity growth accelerating to annualized rates of 4.1% and 4.9% in the second and third quarters of last year, sparking talk of an AI-driven boom.

However, Neil Dutta, head of economic research at Renaissance Macro, urges caution. He argues that productivity is a "residual" figure derived from GDP growth and total hours worked. Since GDP appeared to jump in mid-2025 while payroll growth slowed and work hours stagnated, productivity automatically surged in the data. Dutta suspects the GDP figure may be overstated.

He points to two reasons for his skepticism. First, genuine productivity booms are typically accompanied by strong growth in real, inflation-adjusted incomes, which is not currently happening. Second, major technological investments usually take time to translate into productivity gains, suggesting it may be too early to see an AI-driven surge.

Dutta's conclusion is that observers "are conflating a short-run data disconnect with a longer-run productivity story."

Crude oil prices are climbing as widespread civil unrest in Iran fuels market fears of a major disruption to global energy supplies. The instability has pushed both major benchmarks to multi-week highs.

By 06:50 ET (11:50 GMT), Brent futures had gained 1.9%, trading at $65.08 a barrel and nearing a two-month peak. U.S. West Texas Intermediate (WTI) crude saw a more significant jump, rising 2.4% to $60.74, its highest level since December 8.

Protests Deepen Across Iran

The primary driver behind the market's bullish sentiment is the escalating wave of anti-government demonstrations across Iran, one of OPEC's largest oil producers.

According to a note from BCA Research dated January 12, the current protests have already surpassed the 2019-20 demonstrations in scale and are approaching the size of the 2022-23 unrest. The firm expects the situation to worsen for two main reasons:

• Loss of Credibility: The Iranian regime has lost significant credibility with the public over the past decade.

• Leadership Succession: Opposition forces sense a rare opportunity to gain influence during the impending leadership transition from Supreme Leader Ali Khamenei.

Geopolitical Tensions Flare

As the protests expand across different social classes and geographic regions, both Iran and the United States have started exchanging military threats, raising the stakes.

While Iran's typical response to mass protests is violent repression, the U.S. recently warned the country against using force and stated it would "rescue" any protesters harmed by the regime. In turn, Iran threatened to target U.S. bases and regional shipping lanes if it faced action from the U.S. or Israel.

BCA Warns of 40% Risk of Oil Supply Shock

This mounting instability, which poses a risk to the Iranian regime's survival, has direct implications for the global oil market.

BCA Research now estimates that the probability of a "massive global oil supply shock" has returned to around 40%, a level it had assigned to the risk last year. The analysis highlights how closely traders are watching the domestic situation in Iran for signs of a potential supply interruption.

After a quarter-century of talks, the European Union and South America's Mercosur bloc have finalized a landmark trade agreement. The deal substantially boosts economic ties between the EU and Mercosur's members—Brazil, Argentina, Paraguay, and Uruguay—but its significance extends far beyond commerce. According to officials and analysts, the pact may reveal the limits of the Trump administration's pressure tactics in a region where U.S. influence has waned as China's has grown.

French farmers protest the EU-Mercosur trade agreement in Paris, highlighting the domestic challenges facing the landmark deal.

Did Trump's Foreign Policy Accelerate the Pact?

While South American governments are unlikely to abandon strengthening ties with China or Europe, some analysts believe President Donald Trump's efforts to flex American power may have inadvertently pushed the long-delayed EU-Mercosur agreement across the finish line.

"If credit for this deal goes to anyone, it is to the international context," said Ignacio Bartesaghi, a foreign policy adviser to multiple Uruguayan governments. "It goes to Trump's tariff war, the conflict in Ukraine, to what happened in Venezuela recently."

The Trump administration has recently employed several high-pressure strategies in the region. These include a commando raid to seize Venezuelan President Nicolas Maduro and threats to cut financial support to Honduras if a specific candidate did not win the presidential election. The administration also conditioned billions in loans to Argentina on a conservative victory in the country's midterms and used steep tariffs to pressure Brazil regarding the prosecution of former President Jair Bolsonaro, a Trump ally.

Though voters sided with Trump's preferred candidates in Honduras and Argentina, Bolsonaro was later convicted, and the U.S. eventually dropped most of the new tariffs on Brazilian goods.

The White House maintains its approach has been successful. "The return of America's pre-eminence in the Western Hemisphere, led by President Trump, is undisputed," said spokeswoman Anna Kelly. "All of the President's foreign policy actions have restored American strength after four years of weakness under Joe Biden."

Latin America Recommits to Multilateralism

Despite Washington's focus on unilateral action, few countries in Latin America appear to share the sentiment. Trump has openly criticized multilateralism, withdrawn the U.S. from several global pacts, and told The New York Times he did not need "international law."

In contrast, leaders in the region are championing rule-based international order. Even Argentine President Javier Milei, one of Trump's closest regional allies, celebrated the EU deal as a victory for "clear rules and freedom," despite also praising the U.S.-backed capture of Maduro.

A Brazilian official close to the presidency described the agreement as a "breath of fresh air" during what they called "the most shameful and negatively critical week for multilateralism in decades." The deal's finalization comes after Venezuela, a former full member, was suspended from Mercosur in 2016 for failing to meet trade and human rights standards.

A New Wave of Global Trade Deals

The EU-Mercosur agreement could be just the beginning. Welber Barral, a former Brazilian trade secretary, suggested it may encourage Mercosur to conclude other trade pacts with partners like Canada and the United Arab Emirates.

"Countries are seeking to create regional rules that can be obeyed, so they won't depend on the World Trade Organization, which is being discredited by Trump," Barral said.

This trend is not isolated to South America. Other nations hit with steep tariffs by the Trump administration are also forging new alliances. Indonesia secured a trade accord with the European Union, while Japan, South Korea, and China have pledged to increase regional trade.

Margaret Myers, director of the Asia & Latin America Program at the Inter-American Dialogue, said the deal between Europe and South America shows that many countries are committed to reinforcing global norms.

"At a time when the U.S. is breaking from the status quo, parts of Latin America appear to be upholding it," she said. "It's a wake-up call for the U.S."

A plunging yen combined with surging government bond yields has many market watchers on edge. But according to the Carlyle Group Inc., these trends are positive indicators that Japan is finally breaking free from decades of deflation.

In a recent outlook, Jason Thomas, Carlyle's head of global research and investment strategy, argued that observers are misinterpreting key market signals. The firm's analysis suggests that Japan's current economic state is one of normalization, not crisis.

The Case for Optimism

Carlyle's central argument is that the combination of rising interest rates and a weaker currency is a feature, not a bug, of Japan's economic recovery. Thomas and his team highlight that a more competitive yen directly boosts the profits of domestic businesses.

"There's nothing alarming about the normalization of interest rates in an economy that's finally exited convalescence from its deflationary slump," Thomas stated. "Don't misread market signals."

This perspective pushes back against the growing concern over the yen's sustained weakness, which recently hit a yearly low of around 158 per dollar. At the same time, yields on Japan's benchmark 10-year government bond have climbed 100 basis points over the past year to approximately 2.10%, the highest they have been since the late 1990s.

The Bank of Japan's Deliberate Pace

Under the leadership of Governor Kazuo Ueda, the Bank of Japan (BOJ) has charted a course of steady monetary tightening, a stark contrast to the policies of other major central banks in 2025. The BOJ increased borrowing costs twice last year, and traders are pricing in about 50 basis points of additional hikes by the end of 2026, according to Bloomberg data.

Despite this methodical approach, Japan's 10-year bond yields remain significantly lower than those of its major peers, especially the United States. This wide differential in real interest rates continues to put downward pressure on the yen.

Critics have called the BOJ's pace "glacial," but Thomas defends the central bank's caution. "After 20 years of deflation, some charity is warranted," he said in an interview, noting the "understandable degree of caution."

Debunking the Public Debt Narrative

Concerns about Japan's public finances have also intensified, particularly after the October election of Prime Minister Sanae Takaichi. Her government is preparing a record initial budget of ¥122.3 trillion (approximately $775 billion) for the fiscal year starting in April.

While Japan's public debt is often cited as the highest among major economies, Thomas and his team argue that simple country-by-country comparisons are misleading. Carlyle points to a 2025 study from the Federal Reserve Bank of St. Louis, which presents a different picture.

The study shows that when Japan's government investment portfolios—specifically the Fiscal Investment and Loan Program—are included in the calculation, the country's net liabilities are closer to 80% of its gross domestic product. This figure is substantially lower than that of the US.

"For my entire career, people have fretted about Japan," Thomas concluded. "Many people who have been wrong about Japan for a long time now see a new opening."

Cubans are bracing for severe shortages and widespread blackouts as a critical lifeline of Venezuelan oil has been cut off, a direct result of U.S. policy under President Donald Trump. The island nation is now confronting a siege-like scenario, compounding an already fragile economy.

Shipping data and internal documents from Venezuelan state oil company PDVSA confirm that no crude oil or fuel has been sent to Cuba for approximately a month. This halt in shipments began even before the U.S. capture of Venezuelan leader Nicolas Maduro in early January, as an American blockade tightened its grip on the trade route.

The last oil delivery intended for refining in Cuba departed from PDVSA's Jose port in mid-December. The tanker, carrying around 600,000 barrels of Venezuelan crude, sailed with its transponder turned off to avoid detection.

A "Catastrophic" Outlook for Cuba's Energy Supply

The sudden stop in Venezuelan oil deliveries represents a massive shock to Cuba's energy system. In 2025, Venezuela was the island's primary supplier, providing 26,500 barrels per day (bpd), which accounted for roughly one-third of the nation's daily consumption. Mexico was a distant second, supplying around 5,000 bpd.

Energy experts are sounding the alarm about the potential consequences. "I just don't see any light at the end of the tunnel for Cuba to survive the next few months facing zero deliveries of oil from Venezuela," said Jorge Pinon, an energy researcher at the University of Texas at Austin. "The situation is going to be catastrophic."

President Trump has openly stated his goal of using the U.S. intervention in Venezuela to destabilize Cuba. He recently intensified his rhetoric, urging the island nation on Sunday to negotiate a deal "before it is too late."

Caught Between US Pressure and Government Defiance

The critical question now is how long Cuban President Miguel Diaz-Canel's government can withstand the pressure of dwindling fuel imports. For the island's residents, who already struggle to find food, medicine, and fuel, the uncertainty is palpable.

"It's very stressful because we don't know what decision the Cuban government will make or what actions the United States government will take," commented Victor Romero, a 75-year-old retired state worker from Havana.

President Diaz-Canel has responded with defiance. "Nobody tells us what to do," he declared on Sunday following Trump's threats. "Cuba is...prepared to defend the homeland until the last drop of blood."

Daily Life Under Strain: From Charcoal Stoves to Horse Carts

Outside the capital, much of rural Cuba already operates with minimal modern infrastructure. Horse-drawn carriages and bicycles are common modes of transportation, internet access is unreliable, and electricity is often off for more hours than it is on.

Deyanira Gonzalez, a 57-year-old housewife living in the countryside near Havana, says she already cooks with charcoal due to inconsistent electricity and the high cost or unavailability of liquefied gas. "What will happen now? If Donald Trump doesn't let fuel into Cuba we'll be in the dark with our kids suffering," she said.

So far, the capital city of Havana has been partially insulated from the immediate impact of the fuel cutoff. Many residents report that blackouts have eased slightly in early January as power demand fell from its December peak. Gasoline and diesel remain available at service stations, though they are rationed in the local peso currency.

Few Allies and Limited Options for Fuel Imports

It remains unclear how much oil Cuba has in its strategic reserves. Furthermore, the island's traditional political allies appear unwilling to risk angering the United States by providing significant aid.

"We have not seen any support whatsoever from Cuba's political allies, who are also exporters of oil, like Angola, Algeria, Brazil," noted energy expert Pinon. "No one is coming to Cuba's aid, with the exception of maybe Mexico, in limited amount, and also Russia, in limited amount."

A tanker from Mexico, the Ocean Mariner, did arrive in Havana on Friday with approximately 85,000 barrels of fuel from the state-owned Pemex terminal. However, this shipment is a small fraction of what Venezuela once supplied and is insufficient to power the island of 10 million people.

This reality leaves many Cubans in a state of anxiety. "It's the uncertainty of not knowing what's going to happen," said Ivet Rodriguez, a 39-year-old entrepreneur in Havana. "I try not to even think about it."

Central banks across the globe are preparing a coordinated statement to publicly support U.S. Federal Reserve Chair Jerome Powell, according to two sources familiar with the matter. The move comes in response to the Trump administration threatening Powell with a criminal indictment.

The joint declaration, expected on Tuesday, will feature signatures from international central bankers. Its core message is a firm endorsement of Powell and a defense of the critical principle of central bank independence.

Federal Reserve Chair Jerome Powell is at the center of a dispute that has triggered a global response from monetary policymakers.

A Coordinated International Response

While the statement has been revised extensively over the past day and is still being finalized, it aims to present a united front. One source indicated that it remains unclear how many central banks will sign the initial release, but others will be welcome to join later.

The U.S. administration's probe is officially centered on the renovation of the Federal Reserve's headquarters. However, Powell has reportedly described this investigation as a "pretext" designed to exert presidential influence over interest rate decisions. This action has already drawn sharp criticism from the financial world and from prominent members of the Republican Party.

Fears of Political Influence and Global Risk

The international support for Powell is rooted in a fundamental economic concern: that political interference could shatter trust in the Federal Reserve's commitment to its inflation target. Such a loss of confidence could trigger higher inflation and significant volatility in global financial markets.

Because the United States is the world's dominant economy, any resulting inflation would likely spread through international financial channels. This "exported inflation" would complicate the efforts of other central banks to maintain price stability in their own countries, creating a ripple effect across the global economy.