Putin Meets US Envoys on Ukraine Peace Plan

The Trump administration's $200 billion plan to purchase mortgage-backed bonds was designed to make housing more affordable. However, early evidence suggests the initiative is having a negligible effect, with economists arguing it misdiagnoses the core problem facing the U.S. housing market.

Experts widely agree that the key to affordability is not cheaper financing but a significant increase in housing supply. Meanwhile, geopolitical tensions, driven in part by the administration itself, threaten to push borrowing costs higher, potentially canceling out any marginal benefits from the program.

Joseph Brusuelas, chief economist at RSM US LLP, called the bond purchases "mostly an exercise in burning cash." He added, "The U.S. does not have a demand or financing problem within the housing complex; it has a supply problem, and $200 billion in [mortgage bond] purchases is not going to do anything to bring relief to Americans on the housing front."

A Look at the Numbers: Marginal Impact on Rates

Long-term mortgage rates were already declining before the new policy, largely due to the Federal Reserve's cuts to its short-term interest rate. According to data from Freddie Mac, the average rate on a 30-year fixed-rate mortgage fell from a peak of nearly 8% in the fall of 2023 to 6.15% by the end of 2025.

After the administration directed Fannie Mae and Freddie Mac to begin buying bonds, the rate briefly touched 6.06%, its lowest point since 2022. However, it quickly edged back up to 6.09%.

Figure 1: The 30-year average mortgage rate has trended down significantly from its 2023 peaks, but the effect of the new bond-buying program appears limited amid broader market movements.

Separately, the Mortgage Bankers Association reported that its measure of 30-year mortgage rates fell to its lowest level since September 2024, fueling a surge in refinancing activity to its highest point since September 2025.

Patricia Zobel, a former manager at the New York Fed and current head of macroeconomic research at Guggenheim Investments, remains skeptical. "It's not clear to me how much this will materially lower housing prices for consumers, but we'll see," she commented, while noting that mortgage bond yields have narrowed slightly relative to Treasury bonds.

A Strategy to "Sterilize" the Fed's Runoff

Administration officials have provided few details on the purchases, but Treasury Secretary Scott Bessent explained that a key objective is to offset the Federal Reserve's ongoing reduction of its own mortgage bond holdings. The Fed has been allowing bonds acquired during the pandemic to mature without replacement.

Bessent stated the administration's buying pace would "roughly match" the roughly $15 billion in mortgage bonds rolling off the Fed's balance sheet each month. This plan to "sterilize" the Fed's runoff is viewed with skepticism by many economists. Most analysts agree that the market impact of the Fed's balance sheet changes comes primarily from the initial announcement, not the gradual runoff itself. They argue that the central bank's modest reduction in holdings—from $2.7 trillion in mid-2022 to $2 trillion—is creating no measurable upward pressure on home borrowing costs, questioning the need for an offsetting action.

Fed Officials Point to the Supply Crisis

Federal Reserve officials have also indirectly expressed doubts about the program's effectiveness, consistently pointing to the supply side of the housing equation.

"I do think that a lot of the housing affordability challenges are about more than just financing, and there's a supply and demand issue that has persisted in many major markets," said Atlanta Fed President Raphael Bostic in a January 9 interview.

Minneapolis Fed President Neel Kashkari was more direct. "The biggest barrier for the housing market is supply," he said. "Anything we can do to help get out of the way of allowing more supply to come online... that will help the housing market probably more than anything else."

Geopolitical Headwinds Could Push Rates Higher

Even if the bond-buying program were to lower rates, external factors could easily reverse the effect. A recent selloff in Japanese bonds has caused yields on longer-dated government bonds to spike, putting upward pressure on U.S. rates.

Furthermore, President Trump's own actions on the global stage, including tariff threats and diplomatic friction with allies over issues like the proposed purchase of Greenland, may be diminishing the appeal of U.S. assets. This could weaken demand for Treasuries, which would in turn push borrowing costs higher. The 10-year Treasury note yield, which heavily influences mortgage rates, recently rose to its highest level since August, creating a significant headwind for anyone hoping for lower mortgage payments.

The Bank of Japan is expected to keep interest rates steady on Friday, signaling cautious optimism that a moderate economic recovery will support further borrowing cost increases down the line.

However, Governor Kazuo Ueda is unlikely to offer clear hints about the timing of the next rate hike. The decision is complicated by a fresh wave of market volatility after Prime Minister Sanae Takaichi called for a snap election next month.

The central bank faces a difficult balancing act. It needs to adopt a hawkish tone to fend off pressure on the yen, but without fueling a further rise in bond yields driven by expectations of significant government spending under Takaichi.

Last month, the BOJ raised its key policy rate to 0.75%, a 30-year high. The outcome of its latest two-day meeting is anticipated between 12:30 p.m. and 2:00 p.m. Tokyo time (0330-0500 GMT).

Upgraded Growth Forecasts Signal Confidence

In its upcoming quarterly outlook report, the Bank of Japan will likely raise its growth forecast for the fiscal year starting in April, according to sources. The bank is also expected to maintain its view that the economy is on track for a moderate recovery.

Officials are also set to reaffirm their pledge to continue raising rates if economic performance and price trends align with their projections.

With no immediate policy change on the horizon, market attention is fixed on Governor Ueda's press conference at 3:30 p.m. (0630 GMT). Traders will be searching for clues on how the yen's recent weakness—which drives up import costs and inflation—could influence the pace and timing of future rate increases.

"Despite December's rate hike, the yen has continued to weaken rapidly, which could see the pass-through of higher import prices to domestic consumers accelerate," noted Kei Fujimoto, senior economist at SuMi Trust. "To combat this, the BOJ may need to raise rates at a faster pace." Fujimoto predicts two rate hikes this year.

Fiscal Policy and Tax Cuts Fuel Bond Market Fears

Japan's economy has proven resilient against U.S. tariffs and is poised to benefit from Prime Minister Takaichi's stimulus package, which aims to soften the impact of rising living costs.

However, the premier's commitment to expansionary fiscal policy and a proposal to suspend the 8% sales tax on food have sparked concerns over additional debt issuance. This has led to a spike in government bond yields, which could in turn damage the economy. The persistently weak yen has also kept food prices elevated, potentially giving companies a reason to implement further price hikes in the coming months.

Figure 1: Japanese Government Bond (JGB) yields surged to new highs amid market concerns over Prime Minister Takaichi's proposed expansionary fiscal policies.

Bond Yield Spike Tests BOJ's Tightening Strategy

The sharp rise in bond yields has cast a spotlight on the Bank of Japan's quantitative tightening plan. Under this strategy, the BOJ has been gradually unwinding its massive stimulus programs by slowing its bond purchases to shrink its balance sheet.

Some analysts suggest the BOJ could suspend this tapering or even conduct emergency bond-buying operations to manage extreme market stress.

However, analysts believe the central bank is unlikely to take such steps immediately. Ramping up bond purchases would directly contradict its broader effort to normalize policy and move away from the stimulus that defined its multi-year battle against deflation.

The BOJ shifted its policy direction in 2024, raising its policy rate multiple times and tapering bond purchases with the view that Japan was finally on the verge of sustainably achieving its 2% inflation target.

Source: Yahoo Finance

In a striking reversal, America’s foreign policy establishment is looking to Europe to rein in President Donald Trump. Following Trump's proposal to acquire Greenland, liberal-minded U.S. politicians and analysts are now openly calling for a stronger European stance to preserve the Western alliance.

California Governor Gavin Newsom captured the mood in Davos, Switzerland, with a stark warning to foreign leaders about diplomacy with Trump: "He's a T. rex. You mate with him or he devours you."

This sentiment marks a significant shift. For former and current U.S. policymakers, rooting against their own government is unnatural. Yet Washington's abandonment of its global leadership role and its threats against NATO allies have changed the calculus. There is a growing consensus that only firm European resolve can force the White House to respect international norms and keep the trans-Atlantic partnership alive.

Trump's Actions Trigger a Crisis of Confidence

Trump's unpredictable foreign policy threatens the very global order the United States helped create. Experts warn that if his current trajectory continues, the consequences could be severe:

• The global trade system could evolve to bypass the United States.

• Long-standing allies may move closer to China.

• Self-inflicted tariffs will continue to damage U.S. businesses.

• Key foreign-policy institutions could be hollowed out.

• The U.S. military may be weakened by overextension and declining morale.

Global Alliances Are Already Shifting

The realignment is not hypothetical; it's already underway as nations hedge against an unpredictable Washington. Canadian Prime Minister Mark Carney declared the U.S.-led world order dead in a viral Davos speech, and actions are following words.

Canada is strengthening its ties with China, the European Union is pursuing a major trade agreement with Latin America, and Japan is deepening its defense cooperation with Europe. Investors are also taking note, with pension funds reassessing their U.S. investments.

While stock market volatility can sometimes influence Trump, he told the New York Times that the only force capable of stopping him is his "own morality" and "own mind."

Why Washington Can't Rein In Trump

Hopes that key figures within the U.S. government could moderate the president have faded. With internal checks proving ineffective, many now see external pressure as the only viable option.

The Exit of a Restraining Influence

The seasoned advisors and military leaders who once tempered Trump's aggressive instincts, such as former Defense Secretary James Mattis and former Joint Chiefs Chair Mark Milley, are gone. Their absence has removed a critical buffer.

A Compliant Congress

With the Republican-controlled Congress approving Trump's actions in the Caribbean, Venezuela, and Syria, there is little expectation it will challenge moves like the attempted purchase of Greenland. While midterm elections could shift the political landscape, they are still over nine months away. By a process of elimination, the most immediate check on Trump may have to come from other nations.

The Emerging "Tough Love" Strategy for Europe

Even though Trump has temporarily backed away from the Greenland issue, Europe still faces critical decisions on how to handle him regarding Ukraine, the Middle East, and other global challenges. The idea that "Trump Always Chickens Out" (TACO) has been disproven; he often follows through on his threats.

Lessons from Trump's Past Encounters

Experience suggests Trump backs down primarily when faced with unyielding opponents. When Russian President Vladimir Putin refused to yield to sanctions over Ukraine, Trump abandoned his deadlines. Similarly, when Beijing retaliated against U.S. tariffs and vowed to "fight to the end," Trump quickly negotiated a deal.

These encounters stand in contrast to his dealings with those who have been more reticent.

The Risks of Flattery and Appeasement

Some European leaders, including NATO Secretary-General Mark Rutte and British Prime Minister Keir Starmer, have opted for flattery, treating Trump like a lion tamer with calming words and rewards. They see him as an irrational actor who cannot be engaged through conventional diplomacy.

However, observers in the U.S. have seen Trump betray even his most loyal supporters in Congress and business. They believe Trump interprets caution as fear and responds only to displays of power. U.S. policy experts now argue that liberal institutions need an undaunted defense—and a proactive offense—to push back against authoritarian trends.

A Final Hope: Can Allies Force a US Reckoning?

For the U.S. foreign policy establishment, a world where allies feel safer outside of Washington's orbit is a nightmare scenario. Mobilizing global partners has always been the cornerstone of American strategy, whether for stopping wars, fighting terror, or managing pandemics.

These same policymakers are now pleading for a "tough love" intervention. They believe a determined stand from America's closest allies is the only way to convince a wayward Washington that its current path will lead to isolation and weakness. After countless warnings from former officials and military leaders at home have gone unheard, their last hope is that Europe will draw a line in the sand and dare Trump to cross it.

Canadian Prime Minister Mark Carney is urging the nation to accelerate its economic rebuilding and seek new global markets, signaling a strategic pivot as its trade relationship with a protectionist United States undergoes a fundamental shift.

Speaking in Quebec City, Carney addressed the challenges facing Canada as the U.S. moves in a starkly different direction on trade and foreign policy than it has in decades. The uncertainty is already having an impact, with tepid economic activity as Canadian businesses and households delay spending decisions pending clarity on the future of U.S.-Canada trade.

A Diplomatic Clash Over Economic Dependence

Carney's remarks follow a sharp exchange with U.S. President Trump. After the Canadian leader spoke at the World Economic Forum in Davos about the need for middle powers to counter economic coercion from "hegemons," Trump responded directly.

"Canada gets a lot of freebies from us," Trump said in Davos. "Canada lives because of the United States. Remember that Mark the next time you make your statements."

In his Quebec speech, Carney offered a direct rebuttal. "Canada and the United States have built a remarkable partnership in the economy, in security, and in a rich cultural exchange," he stated. "But Canada doesn't live because of the United States. Canada thrives because we are Canadian."

U.S. Commerce Secretary Howard Lutnick echoed Trump's sentiment, telling Bloomberg News that Canada has the "second-best trade deal in the world with the U.S., after Mexico," but that Carney chooses to "whine and complain."

Economic Uncertainty and the USMCA Factor

The core of the economic uncertainty lies in the upcoming renegotiation of the U.S.-Mexico-Canada trade treaty (USMCA). This agreement is critical for the Canadian economy, as it allows approximately 80% of its imports to enter the U.S. without tariffs.

Carney emphasized that Canadians are living in a "time of great consequence" and must "redouble our efforts" to strengthen their domestic economy. He framed the push for resilience as a choice to work together and build a unified Canadian economic front.

The China Variable Complicates Negotiations

Adding another layer of tension, U.S. officials have warned Canada about its deepening trade ties with China. Commerce Secretary Lutnick stated that this relationship would not be viewed favorably by Trump during the USMCA renegotiation and that Canada would ultimately have to choose between doing business with the U.S. or China.

This warning came just a week after Carney secured an agreement with Chinese leader Xi Jinping. That deal resolved trade irritants related to electric vehicles and agricultural products and included promises of increased Chinese investment in Canadian manufacturing.

Carney suggested Canada's path could serve as a global example. "We can't solve all the world's problems, but we can show that another way is possible," he said, "that the arc of history isn't destined to be warped towards authoritarianism and exclusion."

Venezuela is proposing a sweeping reform of its hydrocarbons law in a landmark effort to overhaul its struggling oil industry and attract critical foreign and local investment. Drafts of the proposal reveal a plan to give companies greater control over operations, including the ability to manage oilfields independently and directly commercialize their output.

This initiative, submitted to the National Assembly by interim President Delcy Rodriguez, aims to fundamentally change the oil law established under former President Hugo Chavez, signaling a significant pivot in the OPEC nation's energy policy.

Key Reforms: More Autonomy and Better Terms for Operators

The proposed changes are designed to offer more attractive and flexible conditions for companies operating in Venezuela. The core elements of the reform include:

• New Contract Models: The law would formalize production-sharing contracts, allowing companies to manage operations at their own risk and expense. Under this model, the state avoids acquiring debt, and companies are compensated with a percentage of the oil they produce.

• Flexible Royalty Rates: The government would gain the discretion to lower royalties and related taxes from 33% to 15% for special projects or those requiring massive investment. "These are fields that require large investments, but to achieve them, there must also be flexibility in royalties," explained lawmaker Orlando Camacho.

• Independent Arbitration: To resolve disputes, the reform introduces the option of independent arbitration. This has been a long-standing request from foreign companies following numerous lawsuits over asset expropriations.

This new framework would allow private firms, even as minority partners with the state-run company PDVSA, to receive proceeds from oil sales directly.

Political Momentum and International Context

The reform proposal has already cleared an initial hurdle, with lawmakers in the National Assembly approving it in a first vote. A second debate and vote are required for final approval.

During the session, National Assembly head Jorge Rodriguez urged legislators to support the changes to attract foreign capital, stating, "Oil beneath the ground is useless." No lawmakers present spoke out against the proposal.

This legislative push follows a 50-million-barrel oil supply deal between Caracas and Washington this month. The deal was agreed upon after the U.S. captured President Nicolas Maduro, giving the U.S. control over Venezuela's primary revenue source, according to U.S. President Donald Trump.

However, the National Assembly, which contains only a few opposition lawmakers, is not formally recognized by the United States due to questions about its legitimacy.

Investor Hopes Clash with Legal and Structural Risks

The proposed reforms directly address demands from oil executives and potential investors, who have been calling for more autonomy to produce, export, and manage cash flow. These demands are part of a broader $100 billion reconstruction plan for Venezuela's energy sector and reflect deep-seated concerns stemming from the nationalizations that occurred two decades ago.

Despite the potential benefits, independent lawyers have raised serious concerns. They warn that the reforms may conflict with Venezuela's Constitution, which reserves the oil industry's main activities for the state. Implementing the changes would also require scrapping numerous related laws passed under Chavez and Maduro.

Experts also point to potential confusion arising from the coexistence of two different operating models. The new production-sharing contracts would operate alongside the traditional joint-venture model, where PDVSA holds a dominant partnership role. This could complicate an industry that has already lost investors due to inflexible rules, nationalizations, and the impact of U.S. sanctions.