Economic Outlook - The current economic environment is causing anxiety regarding inflation, labor market conditions, and future Federal Reserve leadership [1] - The Federal Reserve is observing a slow but positive trend in inflation, suggesting that underlying inflation is closer to the Fed's target than previously thought [2][3] Inflation Measurement - There are biases in the current inflation measurement process, particularly related to housing costs, which may overstate inflation [4][6] - Market rent inflation has been stable at around 1% for the past couple of years, indicating that the actual inflation measurement may not reflect current market conditions [7][8] - Adjustments to inflation measurement should exclude imputed prices from non-market transactions, which can distort inflation readings [10][15] Labor Market Concerns - The Federal Reserve's monetary policy should be forward-looking, considering the lag in the impact of interest rate changes on the economy [18][20] - Current labor market conditions are loosening, and if not addressed, could lead to significant issues by 2027 [27][28] Federal Reserve Policy - The Federal Reserve has not initiated a new round of quantitative easing; current asset purchases are for reserve management purposes [29] - Regulatory demands on banks have created a persistent need for reserves, which affects the Fed's balance sheet and lending capabilities [32][34]

Group 1 - Major U.S. banks, including JPMorgan and Bank of America, predict a 'hawkish' cut of 25 basis points (bps) at today's FOMC meeting, with expectations of fewer cuts in the future [2][3][6] - Fed Chair Jerome Powell is anticipated to signal a higher threshold for future rate cuts, indicating a potential slowdown in monetary easing [1][4][8] - Crypto traders are pricing in a 97% chance of a 25 bps rate cut today, following similar cuts in September and October [5][6] Group 2 - Goldman Sachs and Citi also expect a hawkish cut, with Goldman citing a softening labor market as a reason for the cut [4][6] - Economist Alex Krüger suggests a possible surprise announcement regarding T-Bill Reserve Management Purchases to enhance banking system liquidity, which would resemble quantitative easing [7] - Krüger notes that a priced-in hawkish cut could lead to increased market volatility [8]

Macroeconomic Analysis - The "Magic Formula" indicates GDP growth is increasingly reliant on debt due to declining population and productivity growth [3] - Private sector debt remains around 120% of GDP, with the public sector at a similar level [3] - Economic growth is significantly consumed by servicing private-sector debts, rendering it unproductive [3] - Government debt growth is offsetting demographic decline [5] - Debt growth exceeding GDP is being monetized [6] - Liquidity is the primary driver in the current economic environment [8] Demographic Trends - Birth rates have been declining since the late 1950s, impacting the labor force participation rate [4] - The labor force participation rate is expected to continue declining due to structural demographic issues [4] - Aging populations and automation contribute to deflationary pressures [5] Monetary Policy & Investment Implications - Governments are issuing new debt to cover old interest, with central banks absorbing it through quantitative easing (QE) [7] - A substantial amount of interest needs to be monetized, exceeding GDP capacity [8] - Bitcoin thrives in a world of perpetual currency debasement [9]