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Weekly Update: Fed Cuts Rates a Quarter Point & Will Begin New Treasury Purchases to Support Balance Sheet

Insights
  • Stryker raises dividend 4.8%
  • Amgen raises dividend 5.9%
  • Disney announces deal with OpenAI
  • Adobe releases earnings beating profit and revenue estimates while increasing 2026 guidance
  • Oracle releases earnings beating profit estimates but coming in shy on revenues
  • IBM acquires data-streaming platform Confluent Inc.to boost its AI arsenal
  • NextEra announces deals with Alphabet and Meta to meet surging demand for electricity to run artificial intelligence systems
  • Boeing completes acquisition of Spirit AeroSystems
  • Kinder Morgan provides solid 2026 guidance including growth in EPS and a projected dividend increase 

Domestic Economic News  

US job openings picked up in October to the highest level in five months, though less hiring and more layoffs pointed to a continued slowdown in the labor market. The number of available positions rose slightly to 7.67 million in October from 7.66 million in the prior month, according to Bureau of Labor Statistics data published Tuesday. Vacancies exceeded the median estimate in a Bloomberg survey of economists. The release of both monthly figures was delayed because of the government shutdown. While openings advanced, it was only driven by a handful of industries like retail and wholesale trade industries, as well as health care. The latter has been the biggest driver of job growth this year. Meanwhile, the number of layoffs in October rose to 1.85 million, the highest since the start of 2023, according to the JOLTS report. Dismissals picked up in leisure and hospitality, as well as manufacturing. And hiring declined by 218,000 from the month prior to 5.15 million. That’s consistent with more modest demand for labor in some sectors as employers adjust to a higher-cost environment, partly due to US trade policy, and lingering economic uncertainty. Other data point to a pickup in job-cut announcements. The so-called quits rate, which measures the percentage of people voluntarily leaving their jobs each month, fell to the lowest since May 2020. This suggests people are less confident in their ability to find a new position. Some economists have questioned the validity of the JOLTS data, in part due to the survey’s low response rate and sometimes sizable revisions. A separate index by job-posting site Indeed, which is reported on a daily basis, showed openings declined in October from the month prior, but rebounded in November.  

Sentiment among US small businesses increased in November, largely due to a surge in optimism about the sales outlook. The National Federation of Independent Business optimism index rose 0.8 point to a three-month high of 99, according to figures released Tuesday. Six of the 10 components that make up the gauge increased, while three decreased. One was unchanged. A 9-point improvement in sales expectations was the biggest contributor to the overall increase in the optimism index, NFIB said. A net 15% of owners anticipate higher sales volumes in the next three months, the largest share since the start of the year. Greater sales expectations helped bolster hiring intentions. A net 19% of small companies said they plan to create new jobs in the next three months. That was up 4 points from October and the largest share this year. Increased optimism about sales prospects surfaced despite mounting inflationary pressures. A net 34% said they raised their prices compared with three months ago — the largest share since March 2023 and an increase of 13 percentage points from October. Inflation concerns ranked as the second-biggest problem for small firms behind labor quality. In addition to sales expectations and hiring intentions, the overall index was boosted by a slight improvement in plans to increase inventories and earnings trends. Despite optimism for sales and earnings, business owners were less upbeat about the US economic outlook. A net 15% of small-business owners say they expect the economy to improve in coming months, a seven-month low. The uncertainty index also remained elevated.  

The US trade deficit unexpectedly narrowed in September to the smallest since mid-2020 as exports surged. The goods and services trade gap shrank nearly 11% from the prior month to $52.8 billion, Commerce Department data showed Thursday. The median estimate in a Bloomberg survey of economists was for a $63.1 billion deficit. The value of US exports rose 3% to the second-highest level on record, fueled by non-monetary gold and pharmaceutical preparations. Imports increased a more modest 0.6%. The figures aren’t adjusted for inflation. Large monthly swings in trade this year related to US implementation of tariffs have introduced similar volatility in the government’s measure of economic activity — gross domestic product. The September trade figures will help economists fine tune their estimates for third-quarter GDP. Prior to the monthly report, the Federal Reserve Bank of Atlanta’s GDPNow forecast saw net exports contributing 0.86 percentage point to third-quarter growth. On an inflation-adjusted basis, the merchandise trade deficit narrowed to $79 billion in September, the smallest in nearly five years. Exports of consumer goods, after adjusting for price changes, were the largest on record. The data also showed a sizable pickup in inbound shipments of pharmaceuticals. Imports of capital equipment and autos fell, as did imports of most consumer goods, including cell phones, appliances, toys and furniture. Meanwhile, a record value of nonmonetary gold was exported in September, largely reversing a recent surge in inbound shipments tied to tariff concerns. A month earlier, gold imports slumped after a massive increase in tariffs on Switzerland, a large exporter of the precious metal.  

Applications for US unemployment benefits rose last week by the most since the onset of the pandemic, underscoring the volatile nature of claims at this time of year. Initial claims increased by 44,000 to 236,000 in the week ended Dec. 6, according to Labor Department data released Thursday. That was the biggest jump since March 2020 and followed the lowest level of applications in more than three years in the previous week, which included Thanksgiving. The figure exceeded all but one estimate in a Bloomberg survey of economists. Weekly initial claims tend to be choppy around the holidays and will likely continue to fluctuate through the end of the year, but Thursday’s figures are toward the higher end of readings seen in 2025. Companies like PepsiCo Inc. and HP Inc. have laid out plans to reduce headcount in recent weeks, and nationwide layoffs in October were the highest since early 2023. Pantheon Macroeconomics said the jump in claims suggests layoffs are picking up. Others like High Frequency Economics disagreed, noting that the claims figure is still quite low over a longer period of time. Either way, it’s too hard to make a real judgment about the labor market from these numbers alone given the seasonal noise. “Don’t read too much into the jump in jobless claims,” Heather Long,chief economist at Navy Federal Credit Union, said in a note. “Smoothing it out, this still looks like an economy averaging 215,000 to 220,000 new jobless claims a week. That’s not a cause for concern.” The four-week moving average of new applications, which helps defuse the volatility, landed in that range. It ticked up to 216,750 last week. Here is what Bloomberg Economics had to say: “Addressing media after the Dec. 10 FOMC decision, Fed Chair Jerome Powell said rates of job creation and job finding are “extremely low” and payrolls are running at a negative monthly pace — a dynamic that should keep continuing claims elevated.” — Eliza Winger. This data coming the day after the Fed meeting and their announcement of a quarter point interest rate cut, which we detail below, seemed to be timely in terms of supporting that decision.

Interest Rate Insight and the Fed

Federal Reserve officials delivered a third consecutive interest-rate reduction and maintained their outlook for just one cut in 2026. The Federal Open Market Committee voted 9-3 Wednesday to lower the benchmark federal funds rate by a quarter point to a range of 3.5%-3.75%. It also subtly altered the wording of its statement suggesting greater uncertainty about when it might cut rates again. The dissents and the rate projections highlight divisions among policymakers that have emerged over whether weakness in the labor market or stubborn inflation represent the larger danger to the US economy. In their October statement, the FOMC described what it would take into account “in considering additional adjustments” to their benchmark. In Wednesday’s statement the committee reverted to language used last December — just before a pause in rate cuts — to say “in considering the extent and timing of additional adjustments.” The result marked the first time since 2019 that three officials voted against a policy decision, with dissents on both ends of the policy spectrum. The S&P 500 rose while Treasury yields and the dollar declined. No major changes were seen in market expectations for interest-rate cuts in 2026. Two regional Fed presidents — Austan Goolsbee from Chicago and Jeff Schmid from Kansas City — voted against the decision, preferring to keep rates unchanged. Governor Stephen Miran, whom Trump appointed to the central bank in September, dissented again in favor of a larger, half-point reduction. Fed officials also authorized fresh purchases of short-term Treasury securities to maintain an “ample” supply of bank reserves.

The decision to lower rates comes after divisions on the committee spilled into public view in recent weeks. Following the last rate cut in October, several officials warned of persistent inflation, indicating their hesitancy to support another reduction. Others remained focused on a weakening labor market, calling for at least one more cut. Conflicting data helps explain why there hasn’t been a unanimous vote on the FOMC since June. Unemployment moved to 4.4% in September, up from 4.1% in June. But prices - as measured by the Fed’s preferred gauge of inflation - rose 2.8% in the year through September, still meaningfully higher than the central bank’s 2% target. The government shutdown has further complicated the policy outlook by delaying the release of key data. Despite the divisions on the committee and economic uncertainty, investors had expected a cut on Wednesday after New York Fed President John Williams, who is viewed as close to Powell, signaled his support for a December reduction in a Nov. 21 speech.

In their new economic forecasts officials’ median projections pointed to one cut in 2026, and one in 2027. The rate outlook remained deeply divided, however. Seven officials indicated they favored holding rates steady for all of 2026, while eight signaled support for at least two. Officials upgraded their median outlook for growth in 2026, to 2.3% from the 1.8% they projected in September. They also foresaw inflation declining to 2.4% next year, from the 2.6% they projected in September. The policy decision also comes soon after President Donald Trump said he’s decided whom he’ll nominate to succeed Powell as Fed chair in May and indicated a decision will be announced early next year. The White House has poured criticism on the Fed for not cutting interest rates more quickly, fueling concerns that the central bank’s independence is under threat. Fed officials approved the new Treasury purchases beginning Dec. 12. The move was anticipated by many Wall Street banks as a way to support liquidity in overnight funding markets. Since 2022 and until this month, the central bank had been reducing the size of its Treasury holdings, aiming to reach the smallest possible size without disrupting money markets. In our view the size and timing of these new purchases surprised traders and was interpreted at least initially to be somewhat dovish for markets.  

In separate news this week, US consumer inflation expectations were stable in November while perceptions about job prospects improved, according to a survey from the Federal Reserve Bank of New York. Expected inflation a year ahead was little changed at 3.2% last month, while expected inflation three and five years ahead remained at 3%, according to median responses in the New York Fed’s monthly Survey of Consumer Expectations, published Monday. The perceived probability of losing one’s job fell to 13.8%, marking the lowest reading this year. The New York Fed survey showed consumers largely were more optimistic about the labor market in November than a month earlier, marking down the chances of a higher unemployment rate a year from now and reporting better odds of finding a job if they were to lose theirs. But with job prospects still worse than last year and inflation still elevated, a greater share of households also reported deterioration in their personal finances. The percentage of respondents saying their current financial situation was worse than a year ago rose to 39%, the highest in two years.

Impactful International News

The Bank of Canada held interest rates steady and said although the economy appears to be more resilient than previously thought, the current level of borrowing costs is still appropriate to mitigate the trade war damage. Policymakers led by Governor Tiff Macklem kept the policy rate at 2.25% on Wednesday, as widely expected by markets and a Bloomberg survey of economists. Macklem said that while recent data show Canada’s economy is “proving resilient overall” in the face of US tariffs, the bank still sees ongoing economic slack keeping inflation close to the bank’s 2% target. In the statement, the bank reiterated that the current policy rate is “at about the right level” if its October forecasts hold, and said it believed keeping borrowing costs “at the lower end of the neutral range was appropriate.” “Uncertainty remains elevated. If the outlook changes, we are prepared to respond,” it said. The loonie fell to the day’s low against the US dollar after the bank’s decision, slipping 0.1% to C$1.3860 as of 9:50 a.m. in Ottawa. Canadian debt rallied across the curve, with the two-year yield down some three basis points to 2.66%. Recent data suggests the Canadian economy has been stronger than previously expected, with the labor market adding 181,000 jobs over three months and real gross domestic product in the third quarter growing at a surprising 2.6% on an annualized basis. In his opening remarks to reporters, Macklem said recent revisions to Canada’s gross domestic product for 2022, 2023 and 2024 may explain some of the resilience the bank is seeing, and “suggest the Canadian economy was healthier than we previously thought before we were hit by the US trade conflict.” At the same time, Macklem stopped short of saying whether the bank believes the output gap is narrower due to those revisions, saying instead that the changes “suggest both demand and economic capacity were higher coming into this year.” “While information since the last decision has affected the near-term dynamics of GDP growth, it has not changed our view that GDP will expand at a moderate pace in 2026 and inflation will remain close to target,” Macklem said. The neutral suite of communications suggest the central bank is comfortable remaining on the sidelines barring any major changes to inflation and growth. And while it acknowledges that the economy may be on more solid footing than was previously believed, it sees little change to the output gap. “Overall, there is nothing in the statement to change our view that the Bank of Canada is likely to keep its policy rate unchanged for an extended period of time,” said Charles St- Arnaud, chief economist at Servus Credit Union. “Moreover, it is clear that the threshold for a rate cut is very high and would require a significant deterioration in the outlook.”

China’s annual trade surplus exceeded $1 trillion for the first time despite a deepening plunge in shipments to the US, risking a backlash from markets flooded by goods from the world’s biggest manufacturing nation. Exports returned to growth in November after an unexpected drop the previous month, rising 5.9% from a year earlier and far outpacing a 1.9% gain in imports, according to data published by China’s General Administration of Customs on Monday. The November surplus came in at $112 billion, the third-largest ever accumulated by China in a single month and far more than forecast by economists. As China navigated the trade war and growing economic protectionism around the world, the country amassed a surplus of $1.1 trillion, needing just 11 months to catapult it past a full-year record set in 2024. While shipments to the US plummeted 29% in November — the eighth month of double-digit declines and the biggest since August — strong growth in sales to regions like the European Union and Africa more than offset the slump. The display of export dominance is stirring waves of resentment abroad. French President Emmanuel Macron, who visited China last week, has warned the EU may take “strong measures,” including by imposing tariffs, should Beijing fail to address the imbalance. “If the EU indeed does follow suit with tariffs, it would represent a significant risk to the external demand outlook for China,” said Lynn Song, chief Greater China economist at ING Bank NV.  

The milestone reached by China follows the recent de-escalation of tensions with the Trump administration. The huge surplus also underscores how Beijing is struggling to rebalance the economy away from its dependence on demand abroad, with net exports accounting for almost a third of economic growth this year. “It does look like China’s export competitiveness is still standing firm against US tariffs,” said Michelle Lam, Greater China economist at Societe Generale SA, referring to robust shipments to other markets than America. Rising trade tensions with the EU are “a source of downside risk to watch out for,” she said. On Monday, German Foreign Minister Johann Wadephul arrived in China for a two-day trip, becoming the latest senior European official to visit for talks. China’s exports to the EU expanded almost 15% last month — the fastest since July 2022 — with sales to France, Germany and Italy all seeing double-digit growth. Wadephul said before the trip that he’d raise trade curbs, especially on rare earths, and “overcapacities” in electric vehicles and steel with his Chinese counterparts. China’s auto imports are down almost 39% in the year to date. Shipments overseas have boomed for much of this year, in spite of US President Donald Trump’s launch of a trade war early in 2025. The world’s second-biggest economy has emerged largely unscathed from the standoff, as it delivered more goods to markets other than the US. The year-on-year increase in exports of electronic and machinery products rebounded to almost 10% last month, versus October’s rise of just over 1%, according to Bloomberg calculations based on China’s customs data. Declines in shipments of consumer goods narrowed. Exports to Africa surged nearly 28% in November, while those to the Southeast Asian trading bloc gained only 8.4%, the least since February. Despite escalating tensions over the self-governing island of Taiwan, imports from Japan rose faster in November than exports to there, resulting in a $1.3 billion deficit for China.  

Company Events

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