Latest / Markets with Megan: A Quick Financial Markets Update / Does This Rate Cut Send a Big Warning? | S2 E105 | 12-10-25

Transcript

Does This Rate Cut Send a Big Warning? | S2 E105 | 12-10-25 · Markets with Megan: A Quick Financial Markets Update

• 0:00
  Megan Horneman: The Fed came in and delivered what the markets expected today.
• 0:03
  Megan Horneman: It is Wednesday, December the 10th, and this is Markets with Megan.
• 0:07
  Megan Horneman: If you like this podcast, you can subscribe, hit the alarm bell.
• 0:10
  Megan Horneman: Also feel free to share this with friends, family, colleagues, anyone who wants to see what's going on in the markets, the economic data, what it means, and what it can what they can expect to see going forward.
• 0:22
  Megan Horneman: Today we're going to talk about the Federal Reserve meeting.
• 0:24
  Megan Horneman: This is the last one of the year, and it was widely expected that they would cut interest rates at this meeting, and they did.
• 0:31
  Megan Horneman: We did get three of the Fed voters that dissented.
• 0:34
  Megan Horneman: This is the most dissenting voters that the Fed has had since September of 2019.
• 0:41
  Megan Horneman: So a very divided Federal Reserve.
• 0:43
  Megan Horneman: The three dissenters were Moran, who wanted a 50 basis point cut, and then the Federal Reserve Bank president of Chicago and Kansas City both voted no for interest rate cut.
• 0:54
  Megan Horneman: They wanted to wait and see with the recent inflation data.
• 0:59
  Megan Horneman: Now, they also announced that they would be buying$40 billion of treasury bills through the next 30 days and that they might continue that over the next few months in order to keep that Fed funds rate in that target range of 350 to 375.
• 1:13
  Megan Horneman: There is a lot of year-in just disruption in the in the liquidity market.
• 1:17
  Megan Horneman: So this is something they want to get ahead of if there is any any disruption there.
• 1:22
  Megan Horneman: In the comments, they noted that the consumer spending is solid, but housing remains weak.
• 1:28
  Megan Horneman: They did discuss how the labor market, the labor demand was clearly softening.
• 1:32
  Megan Horneman: And they did mention that the tariff effect would be short-lived and it's a one-time shift in prices.
• 1:39
  Megan Horneman: They also said that the recent rate cuts would stabilize the labor market and that inflation could should continue its downward trajectory.
• 1:47
  Megan Horneman: They, as the past couple meetings, they said this is no preset course.
• 1:51
  Megan Horneman: They're still treating every meeting as a live meeting, and they may end up cutting interest rates again if the economy sours or even possibly raising interest rates if inflation runs away.
• 2:01
  Megan Horneman: However, that's not any of the forecasts.
• 2:04
  Megan Horneman: We did get the forecasts, um, the the economic projections, and what we saw there was there weren't a ton of changes except in the real GDP forecasts.
• 2:13
  Megan Horneman: They actually upgraded GDP, and that's because they see a very resilient consumer.
• 2:19
  Megan Horneman: They downgraded inflation since their prior meeting, both at the headline and the core level, and that's for the next couple years.
• 2:26
  Megan Horneman: Really no change in the labor market data.
• 2:29
  Megan Horneman: Um, they are expecting now just one rate cut in 2026 and one in 2027, and that's coming from their dot plots that they released.
• 2:39
  Megan Horneman: So that's a bit more hawkish than what they had um anticipated in the last meeting.
• 2:44
  Megan Horneman: And again, the the sense of this uh the state the statement was that this was a hawkish cut to interest rates.
• 2:51
  Megan Horneman: Now let's break down just some of the things that were um delivered in the question and answer session for the Fed.
• 2:56
  Megan Horneman: Uh he did state that the the members primarily think that the the S or where the Fed funds rate is now, that it's in neutral territory.
• 3:07
  Megan Horneman: This was a little bit surprising.
• 3:08
  Megan Horneman: They think they're well positioned to wait and see.
• 3:11
  Megan Horneman: So you can think you can take that for what you want, but that sounds like they're not really in any rush to cut interest rates in the near term.
• 3:19
  Megan Horneman: There was a question about AI and the effect on the labor market.
• 3:22
  Megan Horneman: The Fed did note that they um can see higher productivity.
• 3:26
  Megan Horneman: It can have a better impact on economic growth without employment, the unemployment rate moving significantly higher.
• 3:33
  Megan Horneman: Um, the dissenters and those differences that we talked about, that was primarily because of the fact that there's a there's a difference in opinion on how balanced those risks are and which risks that they should focus on most.
• 3:46
  Megan Horneman: Remember, they have a dual mandate.
• 3:48
  Megan Horneman: That is price stability from the inflation standpoint and maximum employment.
• 3:52
  Megan Horneman: So there's some that are worried about inflation and some that are worried about the labor market.
• 3:56
  Megan Horneman: Where do you balance those risks?
• 3:57
  Megan Horneman: That's where those differing of opinions come from.
• 4:00
  Megan Horneman: Um, they are also worried about the distortion in some of the economic data.
• 4:04
  Megan Horneman: They're gonna have to look a little bit deeper into the data to get an idea of where they should go further with interest with the interest rate policy because the the data wasn't collected during the uh the government shutdown.
• 4:16
  Megan Horneman: So there could be some distortions not only in the labor market data, but also in the CPI.
• 4:21
  Megan Horneman: Now, markets really liked this report.
• 4:24
  Megan Horneman: They did not necessarily look at this as too much of a hawkish report.
• 4:27
  Megan Horneman: They're shrugging off the fact that at one time they were expecting three interest rate cuts next next year, and now the Fed's only saying there may be one.
• 4:35
  Megan Horneman: Um, there could be some optimism around the fact that the GDP forecasts were increased, that the Fed's not really worried about the labor market collapsing.
• 4:44
  Megan Horneman: And then on the back of this announcement, the yields are also lower.
• 4:49
  Megan Horneman: So when you have lower yields, that sometimes does increase the equity.
• 4:53
  Megan Horneman: So we're seeing that across the board, but it's more widespread than just the large cap growth technology story that we've seen.
• 5:00
  Megan Horneman: In fact, today you're seeing small and mid-cap stocks outperforming large cap stocks, and value is outperforming growth.
• 5:07
  Megan Horneman: Um, that as we mentioned, yields are lower across the curve.
• 5:10
  Megan Horneman: Gold's actually lower because some of this flight to safety is being taken out of the market.
• 5:15
  Megan Horneman: And then the doc dollar is slightly lower on this news.
• 5:18
  Megan Horneman: That's all we have today.
• 5:19
  Megan Horneman: If you want a history of our podcast, you go to markets with Megan.fm.
• 5:23
  Megan Horneman: Thank you.