What’s curious is that bond investors don’t appear to share these concerns. In the world’s largest public debt market, U.S. Treasury yields have been falling at the short end. At the long end of the curve, yields have been stable even after the recent sell-off in Japanese government bonds (Figure 4). While it’s understandable that short-term yields are falling, given the pressure on the Federal Reserve (Fed) to cut rates in the face of softening core inflation and weak employment growth, it is curious that ...

Group 1 - The Federal Reserve is likely to maintain interest rates steady next week, as indicated by the delayed reading of the Personal Consumption Expenditures (PCE) Index, which showed a year-over-year inflation increase of 2.8% excluding food and energy prices, and a month-over-month increase of 0.2% [1] - The Bureau of Economic Analysis combined October and November PCE data due to a government shutdown, which has created challenges in interpreting inflation trends [2] - Consumer spending remained robust in the fall, with economic growth in the third quarter revised upward to 4.4%, driven by stronger exports and business spending [3] Group 2 - Real consumption increased by 0.3% in both October and November, suggesting that the economy may not require additional policy support [4] - The Federal Reserve is expected to keep rates in the range of 3.5% to 3.75% after having cut rates three times in the previous fall [4]

Group 1 - Policymakers are expected to maintain the federal funds rate between 3.5% and 3.75% after the upcoming meeting, with traders anticipating one to two quarter-point reductions this year [3] - The core consumer price index rose by 0.2% in December and 2.6% for the entire year, matching a four-year low [4] - The Federal Reserve's preferred inflation measure is projected to fall below the 3% forecast for 2025, with the personal consumption expenditures price index (excluding food and energy) rising by 2.8% in November [6] Group 2 - President Trump has been advocating for more significant interest rate cuts, suggesting a reduction to as low as 1%, claiming that current rates hinder economic success [5] - The Beige Book report indicates moderate price growth across most of the Fed's districts, with only two districts reporting slight price increases [5][6] - Economic analysts expect inflation to continue to undershoot the Federal Open Market Committee's expectations this year due to low tariff revenues and signs of slowing wage growth [6]

Core Insights - Inflation improved in October 2025, with annual inflation at 2.7%, before rising to 2.8% in November, aligning with Wall Street's expectations [1][2] - The Federal Reserve's preferred inflation measure, the core PCE price index, showed a similar trend, with core PCE at 2.8% for September and matching estimates for October and November [2] Economic Indicators - The Federal Reserve is expected to conclude its policymaking meeting on January 28, with only a 5% chance of interest rate cuts in the upcoming vote, following a reduction to between 3.5% and 3.75% in December [3] - Fed Chair Jerome Powell indicated a likely pause on further cuts, emphasizing a "wait and see" approach regarding economic developments [3] Contextual Background - President Donald Trump claimed significant cooling of inflation, stating there was "virtually no inflation" and that he had "defeated" inflation over the past year [4] - The Federal Reserve aims for a 2% annual inflation rate, which has been exceeded for 57 consecutive months, raising concerns about the labor market and the impact of high inflation on lower- and middle-income Americans [4]

Economic Indicators - The dollar index (DXY00) is down by -0.28%, with a stock rally reducing liquidity demand for the dollar [1] - US Q3 GDP was revised upward by 0.1 to 4.4% (q/q annualized), exceeding expectations of no change at 4.3% [2] - US weekly initial unemployment claims rose by +1,000 to 200,000, indicating a stronger labor market than the expected 209,000 [1] - US Nov personal spending increased by +0.5% m/m, aligning with expectations, while personal income rose by +0.3% m/m, below the expected +0.4% [2] - The US Nov core PCE price index rose by +0.2% m/m and +2.8% y/y, meeting expectations [2] Monetary Policy and Market Reactions - The Federal Open Market Committee (FOMC) is anticipated to cut interest rates by about -50 bp in 2026, contributing to dollar weakness [4] - The Fed has begun purchasing $40 billion a month in T-bills, increasing liquidity in the financial system, which is also pressuring the dollar [5] - Markets are pricing in a 5% chance of a -25 bp rate cut at the FOMC's next meeting on January 27-28 [3] Currency Movements - The euro (EUR/USD) is up by +0.34%, benefiting from dollar weakness and support from President Trump's decision to refrain from imposing tariffs on European nations [6] - The Eurozone Jan consumer confidence index rose more than expected to an 11-month high, further supporting the euro [6]

Core Insights - US consumer spending, adjusted for inflation, increased by 0.3% in November for the second consecutive month [1] - The core personal consumption expenditures price index, which is the Federal Reserve's preferred measure of underlying inflation, rose by 0.2% in November compared to the previous month and by 2.8% year-over-year [1]

Core Viewpoint - The article discusses the current state of inflation and its implications for the economy, highlighting the challenges faced by consumers and businesses due to rising prices [1]. Group 1: Inflation Trends - Inflation rates have been increasing, impacting various sectors and consumer spending patterns [1]. - The article notes that certain commodities have seen significant price hikes, contributing to overall inflation [1]. Group 2: Economic Impact - Rising inflation is leading to increased costs for businesses, which may affect profit margins and investment decisions [1]. - Consumers are feeling the pinch as their purchasing power diminishes, leading to potential shifts in spending behavior [1].

Economic Concerns - AAPI adults express significant worry about rising costs, particularly housing and job-related issues, aligning with broader American concerns [1][3] - The financial burden is especially pronounced in high-cost areas, where steady salaries may not suffice for growing families [2] Cost of Living and Healthcare - AAPI adults prioritize healthcare, with 44% wanting government focus on this issue, reflecting a national trend after recent healthcare cuts [6] - Concerns about healthcare costs are prevalent, with approximately 60% of AAPI adults extremely or very concerned about rising costs in 2026 [8] Government Confidence - There is a notable decline in confidence among AAPI adults regarding the government's ability to address key issues, with 70% expressing low confidence, an increase from 60% post-2024 election [9][10] - Dissatisfaction with the current administration may contribute to this lack of confidence, as AAPI adults fear that progress will not be made [10][12]

Core Viewpoint - The Federal Reserve is facing scrutiny over its financial management, with significant annual losses attributed to rising interest rates and asset purchase decisions, raising concerns about accountability and transparency [1][3][4][5]. Group 1: Federal Reserve's Financial Performance - The Federal Reserve is reportedly incurring losses exceeding $100 billion annually due to increased short-term interest rates, which have led to higher interest payments on bank reserves while income from long-term securities remains low [3][4]. - Treasury Secretary Scott Bessent highlighted that the Fed's annual losses stem from "mistimed asset purchases," emphasizing the need for accountability in its operations [4][5]. - Inflation in the U.S. peaked at 9.1% in June 2022, the highest in decades, but has since decreased to 2.7% year-over-year, indicating a volatile economic environment that the Fed must navigate [4][5]. Group 2: Accountability and Transparency Concerns - Bessent argues that the Fed's independence should not compromise its accountability to the American public, especially given its unique ability to create money [1][7]. - The ongoing criminal investigation into Fed Chair Jerome Powell, related to his testimony about cost overruns on the Fed's headquarters renovation, raises further questions about the institution's governance [2]. - Bessent's comments reflect a broader concern that the Fed lacks transparency, which is critical given its influence on the economy and the lives of everyday Americans [7].

Group 1 - U.S. Treasury yields have slightly declined during European trading hours, indicating a cautious investor sentiment despite a calmer market compared to previous days [1] - Upcoming U.S. GDP data at 8:30 a.m. Eastern time and PCE inflation data at 10 a.m. are expected to influence near-term volatility in forex markets and bond yields [1] Group 2 - Signs of softer economic growth or contained inflation could lead to expectations of a more accommodative stance from the Federal Reserve later this year [2]