Dear valued client,
Markets experienced a selloff this week as the Federal Reserve implemented its third consecutive quarter-point rate cut. However, the outlook for 2025 remains uncertain due to persistent inflation and potential economic shifts under the incoming Trump administration. While the Fed previously projected four rate cuts for 2025, that number has now been revised to two, reflecting the central bank’s cautious approach. Inflation remains stubbornly above the 2% target despite a robust job market, prompting Fed Chair Jerome Powell to emphasize the need for a measured approach. Additionally, President-elect Trump’s proposed policies, such as tariffs and tax cuts, are expected to exert inflationary pressures, further complicating the Fed’s decision-making. Despite these challenges, Powell highlighted the strength of the U.S. economy, positioning it as a global leader amidst slower international growth.
The U.S. government faces a potential partial shutdown at 12:01 AM ET on Saturday if Congress and President Biden fail to approve a spending bill. Initially anticipated to be a straightforward process, the negotiations have descended into chaos due to unexpected interventions. President-elect Trump rejected a bipartisan proposal from GOP House Speaker Mike Johnson, while Elon Musk amplified opposition via his social media platform, X, posting over 150 times in one day. Trump then demanded the inclusion of measures to raise or eliminate the U.S. debt ceiling, a departure from typical Republican stances. A revised bill, backed by Trump and Musk, proposed suspending the debt ceiling for two years and allocating $110 billion for disaster aid but failed to gain sufficient support in the House. If the shutdown occurs, federal employees could face furloughs, and essential workers, such as TSA agents and air traffic controllers, would work without pay until funding is restored. In a dramatic turn of events, Canadian Finance Minister Chrystia Freeland resigned just hours before delivering Canada’s fall economic statement, citing irreconcilable differences with Prime Minister Justin Trudeau over fiscal policy. Freeland’s resignation follows weeks of discord, with disputes over costly proposals such as the GST holiday and $250 cheques amid a mounting federal deficit now nearing $62 billion. Freeland criticized the government’s lack of focus on serious economic challenges, particularly the looming threat of tariffs from the U.S. Her departure marks the ninth ministerial exit since July, highlighting growing instability within Trudeau’s cabinet. Public Safety Minister Dominic LeBlanc has been appointed as her successor, inheriting a challenging fiscal landscape. Freeland, however, remains committed to her role as a Liberal MP, signaling her intention to run in the next election.
Canada is not the only place of political turmoil as Germany’s government has collapsed amid mounting economic challenges, with Chancellor Olaf Scholz ousted following a parliamentary no-confidence vote that he himself initiated to trigger early elections. This political shakeup comes after his three-party coalition fractured over disagreements on policies like immigration and debt. Scholz will remain in a caretaker role until a new chancellor is elected in February, as parties vie for support from financially burdened voters. Germany’s economy, the largest in Europe, is stagnating, with unemployment at a four-year high of 6.1%, industrial production down 20% since 2017, and key sectors like manufacturing and automotive under severe strain. Rising energy costs, driven by the loss of Russian gas supplies, and looming U.S. tariffs under President-elect Donald Trump threaten further economic setbacks for the nation.
“Civilization is like a thin layer of ice upon a deep ocean of chaos and darkness.” – Werner Herzog
Have a terrific weekend,
PW
