The final cut (for now)?
The Fed is set to wrap up its last policy meeting of the year on Wednesday, with markets essentially convinced that the central bank will lower interest rates for a third time since September.
There may still be drama, however, as investors worry that stubbornly high inflation and volatility from a potential trade war orchestrated by President-elect Donald Trump could force the Fed to go easier on rate-cutting next year.
The central bank is divided on what to do, with a growing number of officials taking a more cautious tone in recent weeks. That could signal an emerging belief among policymakers that borrowing costs should remain higher for longer, the kind of debate that created huge friction between Trump and the politically independent Fed in his first term.
Jay Powell, the Fed chair, has sounded more hawkish lately, too. He told Andrew at the DealBook Summit this month that a “stronger” economy meant that “we can afford to be a little more cautious as we try to find neutral.” That refers to the Fed’s target of achieving an interest rate level that neither encourages nor impedes growth.
Inflation remains a concern. Recent economic data has shown that the Fed’s efforts to tame price rises have largely stalled. (The release on Friday of the Personal Consumption Expenditures index, the Fed’s preferred inflation gauge, should offer more clues.)
That’s adding uncertainty as investors ponder the effects of Trump’s likely economic policies and whether his pledge to lower taxes, crack down on immigration and impose tariffs on trade partners will revive the inflation genie and further muddle the Fed’s rates policy next year.
Even so, consumers are feeling more optimistic about their finances.
What Wall Street is predicting: The futures market on Tuesday was pricing in about 80 percent odds of the Fed holding fire on rates at the January meeting.
A number of economists see the central bank cutting its benchmark lending rate three times next year, which Goldman Sachs calculates would put it at around 3.625 percent, or a quarter percentage point percent higher than what the Fed had predicted in September.
Pay attention to the Fed’s forecast. In addition to its outlook on cuts, investors will be eyeing how it will manage its financial holdings, José Torres, senior economist at Interactive Brokers, wrote in an investor note on Monday.
He added that “a dovish pitch” by Powell would “likely lead to a continuation of the Santa Claus rally.” Anything short of that could “hamper financial market exuberance.”
HERE’S WHAT’S HAPPENING
A Russian general is killed in a Moscow bomb blast. Igor Kirillov, an official in charge of Russia’s nuclear defense force, was killed, in one of the most brazen assassinations since Russia’s full-scale invasion of Ukraine nearly three years ago. The explosive device was planted on a scooter and Russia vowed to retaliate.
A judge sentences Carlos Watson to nearly 10 years in prison. The ruling against a co-founder of Ozy Media draws a line under one of the most closely watched business fraud cases in recent memory. Watson was convicted this summer of defrauding investors, lying about the company finances and identity theft, stemming from a fund-raising call that he is accused of helping to set up during which another co-founder impersonated a YouTube executive.
The Biden administration retaliates against China for a telecom hack. Washington is moving toward a complete ban of China Telecom in the United States, after a Commerce Department investigation found that its operations posed a national security risk. The company is believed to have used malicious code to infiltrate critical U.S. infrastructure and has 30 days to respond.
Where is Masa’s money?
Masa Son of SoftBank has pledged to invest eye-popping sums in the United States to win over Donald Trump before.
But the Japanese tech investor and his company are in a much different position than they were eight years ago — and he has vastly increased how much money he said he would spend and how many jobs he said he would create.
“President Trump is a double-down president. I’m going to have to double down,” Son said at a news conference with the president-elect on Monday, announcing that he would invest $100 billion to create 100,000 jobs. That is double the amount that the SoftBank chief promised to invest in 2016, as well as double the number of jobs he said it would create.
Trump transition officials say that the new investment pledge will focus on technology and artificial intelligence. Another person with knowledge of Son’s plans told DealBook he would most likely focus on the infrastructure of A.I. — energy, data centers, chips and more.
SoftBank has fewer resources to spend than last time. In 2016, Son had a plausible source for the capital in the form of SoftBank’s first Vision Fund, a $100 billion pool backed in large part by the sovereign wealth funds of Saudi Arabia and Abu Dhabi.
This time, SoftBank has about $30 billion in cash and short-term investments on hand, according to its most recent quarterly report. It also plans to raise money alongside other partners, The Times reports.
But raising outside money could be tricky. The first Vision Fund became associated with the excesses of a bygone era of investing, pushing up start-up valuations and nudging them to grow at all costs. It lost money on WeWork, on a robot-staffed pizza maker called Zume, on the dog-walking app Wag and more. (A second Vision Fund was created solely with SoftBank money.)
And SoftBank’s credit rating sits in junk territory, with some $68 billion worth of long-term debt on its balance sheet, potentially limiting its borrowing. While Moody’s recently upgraded the company’s outlook to positive from stable, suggesting that rating is poised to improve, the agency said that was because of a “decline in leverage.”
There’s another big question: How plausible are Son’s job-creation promises? It’s practically impossible to accurately calculate how well SoftBank did on its 2016 pledge. That sort of math isn’t going to be any easier this time around.
Will Trump save TikTok?
TikTok’s C.E.O. became the latest business leader to kiss the ring. Shou Chew met with President-elect Donald Trump at Mar-a-Lago on Monday, the same day that the company asked the Supreme Court to block a law that would effectively ban the platform in the United States.
Tech bosses have been making a beeline to Trump. Chew’s visit comes after pilgrimages by Meta’s Mark Zuckerberg, Tim Cook of Apple, and Google’s Sundar Pichai and Sergey Brin. “The first term, everybody was fighting me,” Trump marveled in a news conference alongside SoftBank’s Masa Son. “In this term, everybody wants to be my friend.”
Trump has signaled that he could give TikTok a reprieve. The Biden administration passed a law that would force ByteDance, TikTok’s Chinese parent, to divest the business or see the app banned from U.S. app stores next month.
But Trump has said he would “save” the platform to compete with Meta. On Monday, he added that he had “a warm spot” for TikTok and that his team were looking at how to stop the ban.
That would be a stunning reversal. As president, Trump tried to force ByteDance to sell TikTok to an American company or it would be banned. He’s often flipped policy positions, but his vow to increase tariffs on China suggests that he plans to maintain a tough stance on Beijing in his next term.
Yet Chinese companies have proven adept at working around U.S. restrictions. This year, Temu, the Chinese-owned low-cost shopping site, was again the most downloaded free app for on Apple devices. (TikTok ranked 3rd, and the fast-fashion giant Shein was 12th).
And Chinese manufacturers have set up shop in Mexico, taking advantage of the country’s trade agreement with the United States to send goods across the border.
Temu and Shein have sought to play down their Chinese roots. After TikTok ran into trouble during the Trump presidency, Temu tried to pass as a Western brand, and its headquarters are in Boston. Shein is based in Singapore and plans to go public in London.
That won’t stop the scrutiny in Washington — lawmakers say Temu and Shein ship products to the country that are most likely made with forced labor — but Chinese companies are sure to look for new ways to figure out how to keep selling to Americans.
“Our country today faces a grave challenge. The incoming administration in the United States is pursuing a policy of aggressive economic nationalism.”
— Chrystia Freeland, Canada’s former finance minister, in a scathing resignation letter to Prime Minister Justin Trudeau. Freeland’s concerns show how President-elect Donald Trump’s win is already disrupting governments worldwide.
The Trump effect hits health care
Donald Trump touched on many topics at his news conference on Monday, including tariffs, foreign affairs and drones.
But the president-elect also spent time talking about health care — and some of his comments sent the stocks of big companies tumbling.
“We’re going to knock out the middleman,” Trump said, referring to pharmacy benefit managers, or P.B.M.s., the companies that sit between health insurers and customers and essentially control access to prescription drugs. His comments came after a private discussion he had on the topic over dinner with pharmaceutical C.E.O.s, who are pushing back against such companies.
P.B.M.s have been criticized for years for restricting access to treatments and generally pushing up prices. (Or, as The Times reports on Tuesday, not restricting the flow of opioids after being paid billions by companies including Purdue Pharma.)
Shares in CVS Health, UnitedHealth Group and Cigna dropped after Trump’s remarks. (The three own some of the biggest P.B.M.s around.) The president-elect’s broadside is the latest sign that the sector is set for a rough ride in Washington, especially after a bipartisan group of lawmakers introduced legislation to clamp down on the power of P.B.M.s.
Trump also questioned policies around vaccines. He said he was skeptical of mandatory vaccinations in public schools — “I’m not a big mandate person,” he said. And he reiterated that he would look into debunked potential links between vaccines and autism.
However, Trump said he wouldn’t restrict access to the polio vaccine, despite efforts by a close ally of Robert F. Kennedy Jr., his choice to lead the Department of Health and Human Services.
THE SPEED READ
Deals
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Honeywell is considering spinning off its aerospace unit amid a push by Elliott Investment Management for the company to break itself up. (Reuters)
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The co-founder of Blue Owl, a private credit firm, has reportedly held talks with potential partners to create an asset investment giant in the mold of Blackstone and KKR. (FT)
Politics and policy
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A judge denied President-elect Donald Trump’s bid to throw out his hush-money conviction on immunity grounds. (NYT)
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Trump said he would consider pardoning Eric Adams, the New York mayor whose federal corruption trial is set to begin in April. (NYT)
Best of the rest
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Starbucks has more than doubled paid parental leave for employees as the coffee chain faces a union organizing push by baristas. (FT)
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“The Ordinary Explanations Behind the Mysterious Lights in the Skies” (NYT)
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