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The Trump administration's mammoth fiscal legislation will boost economic growth next year, but the impact will be partially undercut by Federal Reserve interest rates kept higher than they would be otherwise, a former top Fed researcher concluded in a new analysis.

The federal deficit, meanwhile, will be even larger than the gain in gross domestic product.

John Roberts, former deputy associate director of the Fed's research division and now a special advisor to Evercore ISI, wrote in an analysis of the Trump legislation known as the "One Big Beautiful Bill" that the arrival of perhaps $100 billion in extra refunds early next year will help lift economic growth by about four-tenths of a percentage point in the first half of the year.

The legislation exempted some overtime and tipped income from taxes and included other tax breaks.

The GDP impact will fade fast, however, and for the full year growth will be about 0.32 percentage points higher than it would have been otherwise, Roberts found using the Fed's internally developed and publicly available FRB/US model of the economy. Next year's deficit, meanwhile, will grow by eight-tenths of a percentage point as a result of the tax cuts and higher spending on defense and border protection.

The slowing impact on growth is partly due to the nature of consumer behavior - the extra money is likely to be spent quickly by the households who intend to spend it at all - and partly due to the Federal Reserve reducing its benchmark policy rate less than it would otherwise due to faster economic growth that leads to slightly higher inflation and a slightly lower unemployment rate.

"The model suggests that rates should be roughly a quarter point higher at the end of 2026 than would have been appropriate in the absence of One BBB stimulus – so for instance, one cut if two would otherwise have been warranted," Roberts wrote. "In response to the stronger economy, interest rates are higher and those higher interest ratesdampen the increase in GDP" by about half.

Roberts' findings illustrate the type of considerations the Fed will be debating at the December 9-10 meeting, with the implications of changed tax policy factoring into the outlook for next year. Officials already are divided over whether further rate cuts are needed now, while President Donald Trump continued to demand lower rates.

Source: Reuters

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Odds of a December rate cut remained low following the release of delayed jobs data.

Markets were last pricing about a 35% chance of a quarter-point cut from the Federal Reserve next month, according to the CME FedWatch Tool. That is higher than the 30% likelihood priced in during the prior session, but remains weak. The tool used fed funds futures trading to calculate the odds.

The target rate is currently at 3.75% to 4.00%.

Those expectations held steady after the release of the September jobs data, the first nonfarm payrolls report investors have seen since the government shutdown. The report gave an uneven picture of the U.S. labor market. The U.S. economy added 119,000 jobs in September, a headline number that blew away expectations for 50,000 jobs added, according to economists polled by Dow Jones.

However, the unemployment rate showed unexpected weakness, rising to 4.4% from 4.3%. The new level is the highest level it's been since October 2021.

"All those numbers suggest an economy that's still hanging in there. Not a dramatic move one way or the other," Former Federal Reserve Vice Chairman Roger Ferguson told CNBC's "Squawk Box" on Thursday. "People should take note of the slight uptick in the unemployment rate, but labor force participation still looks pretty strong, average hourly earnings certainly looks strong, or strong enough. And so, I don't think this sort of tilts the cut decision much one way or the other."

To be sure, some investors are hopeful that weakness in the unemployment rate means a December rate cut remains on the table. The level is closely watched by Fed policymakers, more so than the headline number, and is additionally troubling given that a shrinking labor pool, given the rise in immigration crackdowns, theoretically would keep the job market tight.

"A December cut remains possible given continued labor market softness as expressed by the unemployment rate," wrote Kay Haigh, global co-head of fixed income and liquidity solutions at Goldman Sachs Asset Management. "Weak hard data and close-to-target inflation look set to drive policy going forward, despite recent hawkish noises."

"The setup is in place for Powell to continue his risk-management approach to the labor market before his term as Chair expires in May," Haigh continued.

Source: CNBC

Volodymyr Zelenskiy is scrambling to resist a potentially humiliating peace deal put forward by US officials just as the Ukrainian president faces growing domestic pressure to ditch his most trusted aide in the war against Russia.

Zelenskiy has received signals from the US that he should accept the deal drawn up in consultation with Moscow, a person familiar with the matter said, asking not to be identified because the matter is sensitive.

The White House didn't immediately respond to a request to comment.

Zelenskiy will hold talks in Kyiv on Thursday with US military officials led by Secretary of the Army Dan Driscoll. The delegation, which has met with Ukrainian Prime Minister Yuliia Svyrydenko and army chief Oleksandr Syrskyi, will examine ways to force Russia to end the fighting, according to people familiar with the matter.

The latest attempt by US President Donald Trump's administration to revive negotiations involves a 28-point plan that's modeled on the Gaza ceasefire. It outlines known Russian demands for concessions that Kyiv has repeatedly said are unacceptable and that have so far hindered any breakthrough in efforts to reach a ceasefire.

The proposal includes demands for Ukraine to cede territory in its eastern Donbas region to the Kremlin, the removal of sanctions from Russia, and a halt to war-crimes investigations, according to a person familiar with the matter.

Ukraine would also have to accept limits on the size of its army, the person said, asking not to be identified because the issue is sensitive. That would leave it vulnerable to any renewed offensive ordered by Russian President Vladimir Putin, who endorsed a previous peace accord with Kyiv over eastern Ukraine before starting the 2022 invasion.

European diplomats expressed skepticism about any deal, noting that Putin has a track record of appearing to accept overtures when under pressure. The Kremlin's trying to stop US sanctions targeting Russia's two largest oil companies, Rosneft PJSC and Lukoil PJSC, from coming into force on Friday, people familiar with the matter said, requesting anonymity to speak freely.

Zelenskiy's facing US pressure to make concessions to halt the war as he also prepares to meet with lawmakers from his party on Thursday to try to defuse public anger over a corruption scandal. Anti-graft investigators linked his former business partner to a scheme to embezzle as much as $100 million, a probe that has already forced the departure of two government ministers.

Some in his party want Zelenskiy to replace Chief of Staff Andriy Yermak, his right-hand man who plays a direct role in decisions on top-level appointments and critical elements of Ukraine's wartime strategy, according to a person familiar with the matter. The president will face a parliamentary crisis if he fails to oust Yermak, the person said, asking not to be identified discussing sensitive issues.

Yermak, who regularly accompanies Zelenskiy on high-stakes overseas trips, has amassed outsized influence in the administration. Zelenskiy pushed back against criticism last year, describing Yermak as a "powerful manager."

Ukraine's two independent anti-corruption agencies released details last week of their 15-month probe into alleged money-laundering in the country's energy sector. The scheme involved kickbacks from contractors building defenses to protect Ukraine's nuclear energy facilities from Russian air strikes, according to investigators.

The agencies are in possession of unreleased recordings of alleged conspirators discussing different corruption schemes and officials in Kyiv are on tenterhooks to see who else might be drawn into the investigation.

The controversy erupted as Ukrainians endure lengthy power outages following intense Russian missile and drone attacks targeting energy infrastructure in the approach to winter.

Zelenskiy in July sought to seize control over the anti-corruption agencies, before backing down in the face of Ukraine's largest street protests since the war began and condemnation from Kyiv's international allies.

The president told Bloomberg TV in a Nov. 13 interview that he fully supports the investigation. "The most important thing is sentences for those people who are guilty," he said. "The president of a country at war cannot have any friends."

The domestic political challenge is playing out as Ukrainian officials seek clarity on the plan to end the war promoted by Trump's special envoy Steve Witkoff and Kremlin envoy Kirill Dmitriev.

Ukraine's National Defense and Security Council Secretary Rustem Umerov met with Witkoff earlier this week in Miami and was briefed about the plan, which appeared beneficial to Russia, a person said, asking not to be identified because the matter isn't public.

Ukrainian and European officials don't yet know if Trump backs the proposals and what happens if Kyiv rejects them, according to people familiar with the matter. Ukraine relies on US intelligence support for air defense and on US weapons that are paid for mostly by the Europeans.

European Union foreign ministers voiced alarm at the proposals as they met for talks in Brussels on Thursday.

"For any plan to work, it needs to have Ukrainians and Europeans on board," the bloc's foreign-policy chief Kaja Kallas told reporters.

Source: Bloomberg