POTENTIALLY HAVE AND I FROM THIS ADMINISTRATION. JONATHAN: THEY MADE THEMSELVES EASY TO FIND. LET'S TURN TO THE FEDERAL RESERVE, TRADERS TURNED TO THE FIRST CENTRAL-BANK DECISION OF THE YEAR.JOINING US NOW IS ENDA CURRAN. SOME POTENTIAL SPIES IN THIS NEWS CONFERENCE GIVEN CHAIRMAN POWELL'S ASSERTIVE POSTURE TOWARD THE WHITE HOUSE. ENDA: A LOT OF POLICY AND POLITICS. A LOT OF INTEREST AROUND ANY FRESH COMMENTARY AROUND THE NEUTRAL RATE.WHERE ARE THEY IN THE LABOR MARKET. DO THEY THINK THE LABOR MARKET WILL S ...

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the global economic outlook for 2026, focusing on various regions including the US, Euro area, Japan, and China, as well as implications for monetary policy and inflation trends. Core Insights and Arguments United States - Economic growth is expected to be influenced by central bank discussions on the "neutral" rate, with the Fed likely to cut rates in June and September 2026 due to inflation pressures from a lower unemployment rate [11][12][17] - Consumer spending remains strong, with a 3.5% quarter-over-quarter growth in Q3 2025, but job growth has slowed significantly, indicating a mixed labor market [36] - Inflation is projected to soften mid-year, with core inflation expected to decline as tariff impacts are fully realized [12][36] Euro Area - Growth in the Euro area is steady but below potential, with a forecast of 1.0% growth for 2025 and 2026 [38] - Core inflation has decreased to 2.3%, and further disinflation is anticipated, leading to expectations of ECB rate cuts in June and September 2026 [13][38] - The Euro area composite PMI fell, indicating a slowdown in both manufacturing and services, which aligns with the forecast of modest growth [38][24] Japan - The Bank of Japan (BoJ) raised rates to 0.75% in December 2025, but further increases are not expected in 2026 due to anticipated declines in core CPI [14][36] - Political uncertainty is rising with potential snap elections, which could impact economic stability [14] China - China's growth in Q4 2025 was below expectations, but manufacturing PMI showed improvement, suggesting modest fiscal support in 2026 [15][19] - The global export market share for China is projected to increase to 16.5% by 2030, driven by advancements in manufacturing and sectors like EVs and robotics [19] - Fiscal policy is expected to remain flat compared to 2025, with a focus on front-loaded investments [15] Other Important Insights - The global economic outlook for 2026 presents a wide range of potential outcomes, with scenarios for both stronger spending and rising productivity, as well as mild downturns [16] - The impact of tariffs is becoming more pronounced, with firms beginning to pass costs onto consumers, which may lead to inflation but also reduce recession risks [64][65] - The overall sentiment indicates a cautious approach to monetary policy across various regions, with central banks remaining data-dependent and responsive to economic indicators [18][36][72] This summary encapsulates the key points discussed in the conference call, highlighting the economic outlook and monetary policy expectations across major global economies.

Core Viewpoint - Federal Reserve officials are divided on the extent of interest rate cuts for 2026, with some advocating for steady rates until more data is available on inflation and employment [1] Group 1: Interest Rate Cuts - Fed Governor Stephen Miran is advocating for aggressive interest rate cuts, suggesting a reduction of at least 150 basis points this year to support the labor market [2][3] - Miran describes current monetary policy as restrictive, indicating that underlying inflation is around 2.3%, which allows for further cuts [2] - The Federal Funds Rate currently stands at 3.50% to 3.75%, with a total of 75 basis points cut in 2025 [8] Group 2: Economic Context - There are approximately one million Americans unemployed who could potentially find jobs without triggering unwanted inflation, according to Miran [5] - Fed officials estimate that the long-run neutral rate is between 2.5% and 3%, but can rise to approximately 4.5% to 5% when factoring in inflation [9] - The neutral rate is defined as the interest rate that maintains full employment while keeping inflation stable around the Fed's 2% target [10]

Group 1 - The inevitability of recessions is acknowledged, with the Federal Reserve's role being to mitigate their impact as much as possible [1] - The current rise in the unemployment rate is typically observed before recessions, but there is no immediate recession anticipated due to policy rate adjustments [2] - Various economic shocks, including changes in population growth due to border policy, have led to a decrease in the neutral interest rate, necessitating downward adjustments in policy rates to avoid increasing recession risks [3] Group 2 - The expectation is that interest rates will continue to be adjusted downward in the near future [4]

Group 1: Federal Reserve Policy - Federal Reserve Governor Stephen Miran is advocating for deeper interest rate cuts, suggesting the federal funds rate should be reduced to approximately 2%, which is about half of its current level [2][3] - Miran's stance contrasts with many of his colleagues, as he recently dissented from a 25-basis-point rate cut, instead calling for a more aggressive 50-basis-point reduction [3] - He believes that factors such as immigration policy, deregulation, and tariff revenues will have a disinflationary impact, which has been underestimated by forecasters [3] Group 2: Janus Henderson Acquisition - Janus Henderson Group plc has agreed to be acquired by Trian Fund Management and General Catalyst in an all-cash transaction valued at approximately $7.4 billion, with shareholders set to receive $49.00 per share [4][5] - The acquisition price represents an 18% premium to Janus Henderson's unaffected closing price on October 24, 2025, and a 6.5% premium over the closing price prior to the announcement [5] - The transaction is expected to close in mid-2026, pending regulatory approvals, and Janus Henderson will continue to operate under its current management team [6] Group 3: Market Volatility - The CBOE Volatility Index (VIX) has fallen to an over three-month low, closing at 14.83, indicating reduced investor anxiety and a perceived lower risk environment in the broader market [7][8] - This decline in the VIX suggests that market participants are currently less concerned about potential short-term volatility in the S&P 500 [7]

Core Insights - The inflation report released recently came in lower than expected, indicating a continuation of the disinflationary process, although some data may have been distorted due to technical factors related to data collection [2][3][4] - The unemployment rate has edged up to around 4.5%, with steady job gains in the private sector, suggesting a gradual cooling of the labor market without signs of sharp deterioration [10][11][12] - The Federal Reserve's current monetary policy is seen as well-positioned, with a focus on gathering more data before making further decisions on interest rates [14][16][47] Inflation and Employment - The CPI data showed some positive signs, but technical factors may have pushed the reading down by approximately 0.1% [5][6] - The unemployment rate's increase may also be attributed to data collection issues, potentially boosting the rate by about 0.1% [10][11] - The overall labor reports are consistent with a gradual cooling of the labor market, with no indications of sharp declines [11][12] Monetary Policy Outlook - The Federal Reserve is not currently in a hurry to change interest rates, as the data does not indicate an urgent need for action [16][46] - The neutral interest rate is estimated to be slightly below 1%, with the current stance of monetary policy being mildly restrictive [20][22] - Future interest rate adjustments will depend on sustained inflation rates returning to 2% and the overall economic performance [47][48] Economic Growth Projections - GDP growth for the current year is projected to be between 1.5% and 1.75%, with expectations of growth picking up to around 2.25% next year due to factors like AI investment and strong financial conditions [24][25] - The potential for higher productivity growth from AI is viewed as a favorable tailwind for the economy, which could help achieve inflation targets without harming the labor market [27][28][29] AI and Labor Market Dynamics - The rise of AI is expected to create strong demand for labor in certain sectors while potentially displacing jobs in others, but it is not seen as a cause for structural unemployment [33][34] - The Federal Reserve is monitoring the balance between supply and demand in the labor market as AI continues to evolve [32][33] - Concerns about systemic risks from AI investments are acknowledged, but the focus remains on understanding the current economic landscape [35][36]

Inflation Analysis - CPI data shows encouraging signs of disinflation, but some technical factors related to data collection issues in October and early November may have distorted the headline CPI reading, potentially pushing it down by approximately 01% [3][4][5] - The distortion is attributed to data collection occurring primarily in the second half of November when sales are prevalent, and issues with rent data [6] - The industry awaits further data in the next month or two to better assess the impact of these technical factors on inflation readings [7][8] Labor Market Assessment - Employment reports indicate steady job gains, particularly in the private sector, and moderate growth [9] - Technical factors related to data collection in October may have temporarily boosted the unemployment rate in November, potentially by around 01%, suggesting an adjusted unemployment rate of approximately 45% [10] - The labor market is experiencing a gradual cooling, with no signs of a sharp deterioration [11] Monetary Policy Stance - The Federal Reserve's monetary policy is currently well-positioned to gather more information and assess the economic outlook and risks to achieving employment and price stability goals [14] - Current data is broadly consistent with patterns observed, supporting the decision to cut interest rates at the last meeting, but is not yet a "game changer" [13] - The Federal Reserve is aiming to stabilize the labor market and bring inflation down to 2% without causing undue harm to the labor market, indicating a balancing act [16] Neutral Rate Discussion - The real interest rate, adjusted for inflation, is estimated to be around 1% to 125%, which is within the range of neutral rate estimates [19] - The speaker's personal view is that the neutral rate is likely a bit below 1%, suggesting that monetary policy is still mildly restrictive [20]

Group 1 - The current economic environment is experiencing a positive productivity shock, potentially driven by AI and policy factors, contributing to higher GDP projections [1][2] - There is a notable increase in productivity growth, with recent years showing 2% productivity growth, which is higher than previous trends [1][2] - AI is believed to enhance individual productivity, as users of AI tools report increased efficiency in their personal and professional lives [2][3] Group 2 - The rise in productivity may lead to job displacement, necessitating a reevaluation of labor market dynamics and social implications [3] - The pandemic has accelerated automation and the use of technology, which has further increased productivity levels [4] - The implications of higher productivity could suggest a higher neutral interest rate, potentially allowing for more accommodative monetary policy [4][5]

Economic Growth and Investment - The economy is performing well, with second-quarter growth at 8%, and a forecast of 3.5% to 4% growth for the third quarter [2][3] - There is a significant capital expenditure (capex) boom driven by policies that allow full expensing, contributing to a building boom [3][9] - Investment spending is at a multi-decade high, which is expected to enhance the economy's supply-side potential [9] Interest Rates and Monetary Policy - The neutral interest rate is likely lower than market expectations, suggesting that rates should be lower to stimulate economic activity [1] - High interest rates are currently impacting the economy, but there are concerns that cutting rates too much could lead to excessive debt issuance and potential market bubbles, particularly in AI [4][5] - The yield curve remains flat, indicating that inflation expectations are well-anchored, and a capex boom could be disinflationary [6] Inflation and Wages - Inflation is primarily seen in services, with expectations that prices will decrease due to falling rents and increased housing supply [5][6] - Real blue-collar wages have increased by 1% in the first nine months of the year, marking one of the strongest performances for any new administration [12] - Policies such as the working families tax cut are expected to raise wages through capital investment, which will help address cost of living issues [10][12]

Group 1 - The Federal Reserve is experiencing significant disagreement among officials regarding the appropriate endpoint for interest rate cuts, with estimates diverging more than ever since 2012 [1][4] - Fed Chair Jerome Powell has acknowledged the differing views within the rate-setting committee, highlighting the tension between prioritizing stable prices versus maximum employment [2][3] - The concept of the "neutral" interest rate, which neither stimulates nor constrains the economy, is currently a focal point of debate among Fed officials [3][5] Group 2 - In September, 19 Fed officials provided 11 different estimates for the neutral rate, ranging from 2.6% to 3.9%, indicating a wide range of opinions [4] - The estimates are becoming increasingly significant as the Fed's benchmark approaches the upper edge of the range, complicating future rate cuts [5] - Philadelphia Fed President Anna Paulson expressed caution heading into the December meeting due to the risks of higher inflation and unemployment, suggesting that monetary policy must balance carefully [5][6]