Daily Newsletter 12/08/25

Market consensus anticipates a 25 basis point Fed rate cut this week with a hawkish tone, a view we have steadfastly maintained even as broader sentiment briefly wavered on cut expectations. This messaging reflects inflation stuck above 2%, emphasizing data-driven decisions and progress on long-term price stability. With employment softening, the Fed cannot prioritize inflation combat amid recession risks the nation—and politicians in an election year—cannot tolerate. Job seekers face a tough market, but the economy endures thanks to massive AI spending and affluent consumption, with weakness likely persisting until spring tax refunds spur growth acceleration. Meanwhile, a Supreme Court ruling against reciprocal tariffs looms, prompting questions on legal alternatives and interim steps, alongside growing calls for Federal Reserve reform.

Our takeaway:

Gold remains favored by us. Central banks continue to accumulate it, and the upcoming Fed chairman is expected to be somewhat aligned with the administration’s preference for increased spending rather than deficit reduction.

Bond yields would likely decline in a slower-growth economy. Until that materializes, they are poised to trend higher.

The AI bubble persists. Fundamentals remain solid, though investors now express concerns over credit risks for data centers and adequate electric power supply.

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