Kashkari indicated that it would be reasonable for the Federal Reserve to consider another rate cut at the upcoming meeting. However, given the strong underlying economy and uncertainty surrounding Trump’s inflationary measures once he takes office, I believe they will choose to maintain the current rates, which are priced at a 40% probability in the options market. By not lowering rates, they can preserve ammunition in case of adverse economic data and keep the door open for potential hikes in 2025 if inflationary pressures re-emerge.
U.S. equities opened strongly but subsequently gave back some gains; the Nasdaq is up 0.15% at 20,880, with Nvidia experiencing a decline over two sessions, dropping from an all-time high of $152 to $136. Futures are taking a slight hit following Trump’s comments on Truth Social, where he suggested implementing a 10% tariff on Chinese goods and a 25% tariff on all products from Mexico and Canada.
Bessent’s pick for secretary was perceived as a moderate choice, leading to a rally in the bond market and a weaker U.S. dollar, which is now at 106.81. The yen has fallen below 154, while the euro has rebounded above 1.04.