Economy

The main focus of the markets as we approach 2025 will be the path of interest rate cuts by the Federal Reserve, after the central bank policymakers detailed forecasts to cut rates by 50 basis points in 2025, bringing the target range for the funds rate down from 4.25%-4.50% to 3.75%-4.00%, citing concerns about inflation remaining above target.Core PCE inflation, a key measure for the Fed, is projected to reach 2.5% by early 2025 if recent trends persist, above the central bank’s 2% target.However, BCA Research expects the Federal Reserve to cut interest rates by more than 50 basis points in 2025, projecting that inflation will undershoot the Fed’s targets, while unemployment is set to rise above its forecasts.”If monthly core PCE inflation prints at its 3-month average, the 12-month rate will hit 2.5% by March. If monthly core PCE inflation prints at its 6-month average, the 12-month rate will hit 2.5% by February,” the report notes. This suggests inflation could align with or fall below the Fed’s forecast sooner than anticipated.BCA said that if three consecutive PCE inflation prints average 0.2% or lower, the Fed could implement another 25 bps cut, potentially leading to total easing of up to 100 bps by the end of 2025.BCA also noted that the labor market is losing momentum. The unemployment rate has risen to 4.2%, up from its cycle low of 3.4%, and BCA questions the Fed’s 4.3% year-end forecast.”Hitting that level would require a significant improvement in labor market momentum, a trend shift we don’t view as particularly likely,” BCA noted.US stock futures traded largely unchanged in thin volumes Tuesday, with the market set to close early for the start of the Christmas festivities. By 03:55 ET (08:55 GMT), the Dow futures contract was down 35 points, or 0.1%, S&P 500 futures dropped 2 points, or 0.1%, and Nasdaq 100 futures rose by 6 points, or 0.1%.The New York Stock Exchange closes early Tuesday for Christmas Eve, and the market is also closed on Wednesday for Christmas Day.The main Wall Street indices had started the holiday-shortened week with a positive slant on Monday, with the S&P 500 rising around 0.7%, the Nasdaq Composite closing about 1% higher and the Dow Jones Industrial Average gaining nearly 0.2%.This follows a generally strong year, with the broad-based S&P 500 gaining over 25%, the tech-heavy Nasdaq Composite up over 30%, and the blue chip DJIA gaining around 14%.A strike at Starbucks’ US stores is set to expand Tuesday, with the union representing the workers at the coffee chain claiming more than 5,000 workers expected to walk off the job, with the strike expanding to over 300 stores before the five-day work stoppage ends later on Christmas Eve.Starbucks Workers United, representing employees at 525 stores nationwide, said more than 60 US stores across 12 major cities, including New York, Los Angeles, Boston and Seattle, were shut on Monday.Talks between Starbucks (NASDAQ:SBUX) and the union had hit an impasse with unresolved issues over wages, staffing and schedules, leading to the strike.The Christmas Eve strike on Tuesday was projected to be the largest ever at the coffee chain, the union added.Earlier this month, the workers’ group rejected an offer of no immediate wage hike and a guarantee of a 1.5% pay increase in future years.xAI, the artificial intelligence start-up founded by billionaire Elon Musk raised $6 billion in a series C funding round, which included participation from Nvidia (NASDAQ:NVDA) and AMD (NASDAQ:AMD). The latest round puts xAI’s valuation at more than $40 billion, according to multiple reports, and comes after a series B funding round earlier this year also raised $6 billion.xAI said the new funds will be deployed towards building more AI infrastructure and furthering the development of its flagship models. The company aims to compete with major AI firms such as OpenAI with its Grok AI model.Musk had founded xAI in March 2023. Crude prices edged higher Tuesday, stuck in a tight trading range ahead of the Christmas holiday period. By 03:55 ET, the US crude futures (WTI) climbed 0.7% to $69.72 a barrel, while the Brent contract rose 0.7% to $72.81 a barrel.Despite these small gains, both benchmarks were down about 5% so far in 2024, with persistent concerns over slowing demand in China, the world’s largest oil importer,  being a key point of pressure.Both OPEC and the IEA have forecast slower demand growth in 2025 due to slowing demand in China. The country is also expected to face increased economic headwinds from a renewed trade war with the US under the new Donald Trump-led administration. Oil markets were also on edge over a potential supply glut in 2025, with US oil production close to record highs, and Trump vowing to ramp up domestic energy production, as well as OPEC likely to increase production at some point in 2025.U.S. inventory data, from the American Petroleum Institute, is due later in the session.  More

“The median FOMC participant now expects to cut rates by 50 basis points in 2025, bringing the target range for the funds rate down from 4.25%-4.50% to 3.75%-4.00%,” BCA said in a report. However, the investment research firm believes that “more than 50 bps of easing will be required” as core PCE inflation trends lower and the job market weakens.Core PCE inflation, a key measure for the Fed, is projected to reach 2.5% by early 2025 if recent trends persist. “If monthly core PCE inflation prints at its 3-month average, the 12-month rate will hit 2.5% by March. If monthly core PCE inflation prints at its 6-month average, the 12-month rate will hit 2.5% by February,” the report notes. This suggests inflation could align with or fall below the Fed’s forecast sooner than anticipated.At the same time, the labor market is losing momentum. The unemployment rate has risen to 4.2%, up from its cycle low of 3.4%, and BCA questions the Fed’s 4.3% year-end forecast.”Hitting that level would require a significant improvement in labor market momentum, a trend shift we don’t view as particularly likely,” BCA noted.In this context, BCA outlines a potential path for rate cuts, with a possible initial 25 bps cut in March. Chair Jerome Powell indicated last week that the Fed will remain data-dependent, stressing that next year’s rate decisions “will not be because of anything we wrote down today, we’re going to react to data.”BCA believes that if three consecutive PCE inflation prints average 0.2% or lower, the Fed could implement another 25 bps cut, potentially leading to total easing of up to 100 bps by the end of 2025.The report also addresses the impact of potential tariffs from the incoming Trump administration, suggesting that while tariffs could temporarily push inflation higher, the resulting drag on manufacturing would likely force the Fed to accelerate rate cuts in the latter half of the year.Quantitative tightening (QT) is expected to slow by mid-2025 and halt entirely by late 2025 or early 2026.  More

The plan for 2025 sovereign debt issuance would be a sharp increase from this year’s 1 trillion yuan and comes as Beijing moves to soften the blow from an expected increase in U.S. tariffs on Chinese imports when Donald Trump takes office in January.The proceeds will be targeted at boosting consumption via subsidy programmes, equipment upgrades by businesses and funding investments in innovation-driven advanced sectors, among other initiatives, said the sources.The sources, who have knowledge of the discussions, declined to be identified due to sensitivity of the matter.The State Council Information Office, which handles media queries on behalf of the government, the finance ministry and the National Development and Reform Commission (NDRC), did not immediately respond to a Reuters request for comment.China’s 10-year and 30-year treasury yields rose 1 basis point (bp) and 2 bps, respectively, after the news.The planned special treasury bond issuance next year would be the largest on record and underscores Beijing’s willingness to go even deeper into debt to counter deflationary forces in the world’s second-largest economy.The issuance “exceeded market expectations,” said Tommy Xie, head of Asia Macro (BCBA:BMAm) research at OCBC Bank.”Furthermore, as the central government is the only entity with meaningful capacity for additional leverage, any bond issuance at the central level is perceived as a positive development, likely providing incremental support for growth.” China does not generally include ultra-long special bonds in annual budget plans, as it sees the instruments as an extraordinary measure to raise proceeds for specific projects or policy goals as needed.As part of next year’s plan, about 1.3 trillion yuan to be raised through long-term special treasury bonds would fund “two major” and “two new” programmes, said the sources with knowledge of the matter.The “new” initiatives consist of a subsidy programme for durable goods, allowing consumers to trade in old cars or appliances and buy new ones at a discount, and a separate one that subsidises large-scale equipment upgrades for businesses.The “major” programmes refer to projects that implement national strategies such as construction of railways, airports and farmland and build security capacity in key areas, according to official documents.The state planner NDRC said on Dec. 13 Beijing had fully allocated all proceeds from this year’s 1 trillion yuan in ultra-long special treasury bonds, with about 70% of proceeds financing the “two major” projects and the remainder going towards the “two new” schemes.TARIFFS THREATAnother big portion of the planned proceeds for next year would be for investments in “new productive forces”, Beijing’s shorthand for advanced manufacturing, such as electric vehicles, robotics, semiconductors and green energy, the sources said.One of the sources said more than 1 trillion yuan would be earmarked for that initiative. The rest would go to recapitalise large state banks, said the sources, as top lenders struggle with shrinking margins, faltering profits and rising bad loans.The issuance of new special treasury debt next year would equate to 2.4% of 2023 gross domestic product (GDP). Beijing raised 1.55 trillion yuan via such bonds in 2007, or 5.7% of economic output at that time.President Xi Jinping gathered with top officials for the annual Central Economic Work Conference (CEWC) on Dec. 11 and 12 to chart the economic course for 2025.A state media summary of the meeting said it was “necessary to maintain steady economic growth”, raise the fiscal deficit ratio and issue more government debt next year, but did not give specifics.Last week Reuters reported, citing sources, that China plans to raise the budget deficit to a record 4% of GDP next year and maintain an economic growth target of bout 5%.At the CEWC, Beijing sets targets for economic growth, the budget deficit, debt issuance and other areas in the year ahead.Though usually agreed by top officials, such targets are not officially unveiled until an annual parliament meet in March and could still change before then.China’s economy has struggled this year due to a severe property crisis, high local government debt and weak consumer demand. Exports, one of the few bright spots, could soon face U.S. tariffs in excess of 60% if Trump delivers on campaign pledges.While the risks to exports mean China will need to rely on domestic sources of growth, consumers are feeling less wealthy due to falling property prices and minimal social welfare. Weak household demand also poses a key risk.Last week, officials said Beijing plans to expand the consumer goods and industrial equipment trade-in programmes.($1=7.2939 Chinese yuan) More

Paetongtarn Shinawatra also told reporters she hoped for economic growth of more than 3% next year. The government has said it wants to raise the daily minimum wage to 400 baht ($11.72) nationwide to help drive the economy.However, the wage committee on Monday decided to raise the daily minimum wage by 2.9% to between 337 baht and 400 baht ($9.9 to $11.7), varying in each region, effective Jan. 1.The top end of that range will apply only to the provinces of Phuket, Chachoengsao, Chon Buri and Rayong, and the holiday island of Samui.Paetongtarn said the government also approved tax breaks to boost consumption, but gave no details.Deputy Finance Minister Julapun Amornvivat said the government would offer a tax deduction of up to 50,000 baht based on proven spending, but excluding domestic travel. The tax breaks will be introduced between Jan 16 and Feb 28, he added.The prime minister said the cabinet had approved the second phase the handout scheme worth 40 billion baht for four million elderly people who would receive payments by January.The first phase of the signature $14 billion scheme was launched in September, with about 14.5 million people having so far received payments of 10,000 baht each. The government plans to distribute the handouts to about 45 million people overall.($1 = 34.1300 baht) More

$75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

$75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

TOKYO (Reuters) – Bank of Japan policymakers agreed in October to keep raising interest rates if the economy moves in line with their forecast, but some stressed the need for caution due to the uncertain outlook, minutes of the meeting showed on Tuesday.The central bank left interest rates steady at 0.25% at the Oct. 30-31 meeting but projected inflation to move around its 2% target in the coming years, signalling that it was on track to hike borrowing costs in the near-term horizon.The nine-member board shared the view that the BOJ would continue to raise interest rates if its economic and price projections are met, the minutes showed.But many members also stressed the need to continue scrutinising risks surrounding overseas economies, including that of the United States, and still-unstable markets.”We must guide monetary policy cautiously given heightening uncertainty at home and abroad,” one member was quoted as saying in explaining why the BOJ should stand pat in October.The BOJ kept rates unchanged at a subsequent meeting in December to await more data on whether wages would retain their upward momentum next year, and to gain more clarity on U.S. president-elect Donald Trump’s policies. More