Trump 2.0 looms large over Federal Reserve’s 2025 outlook

Good morning. On today’s agenda:

• US government faces shutdown

• A draw-it-yourself chart of the day

• And the FT’s Person of the Year

Good morning. We start with the impact of the Federal Reserve’s decision yesterday to cut interest rates by a quarter of a percentage point. The reduction was in line with expectations, but the US central bank signalled a slower pace of easing next year and increased its 2025 inflation estimates, triggering big market movements.

The dollar jumped to its highest level in two years against a basket of six currencies, while US stocks and government bond prices fell. The S&P 500 index closed down nearly 3 per cent and the tech-heavy Nasdaq Composite dropped 3.6 per cent. Shares in smaller-publicly listed companies, considered particularly sensitive to fluctuations in the US economy, were badly hit, with the Russell 2000 index closing down 4.4 per cent.

Fed chair Jay Powell cited signs that progress on getting inflation down to the central bank’s 2 per cent target had stalled. He also acknowledged that some officials had begun to include assumptions about Donald Trump’s policies in their forecasts, a marked shift from his initial stance of avoiding speculation about what the next administration would do. 

Some economists fear that the president-elect’s plans for tariffs, mass deportations and tax cuts could lead to higher inflation, lower growth and more volatility, further complicating the Fed’s task of finding a “neutral” rate that neither slows nor accelerates growth.

• More interest rate decisions: The Bank of Japan left interest rates unchanged earlier today at 0.25 per cent as uncertainty swirled around Japanese wage growth and Donald Trump’s impending presidency. The Bank of England and Mexico’s central bank announce their latest interest rate decisions later.

For the latest on the incoming Trump administration, sign up for our White House Watch newsletter. And here’s what else we’re keeping tabs on today:

• Economic data: The US has updated third-quarter GDP figures.

• Companies: Accenture, ConAgra, FedEx and Nike report results while members of the Teamsters union launch industrial action against Amazon in cities across the country.

• Luigi Mangione: The suspect in the murder of UnitedHealth Group executive Brian Thompson is due to appear in Pennsylvania for a hearing on whether he will be extradited to New York.

• War in Ukraine: Volodymyr Zelenskyy meets EU leaders in Brussels as the bloc’s chief diplomat warns western capitals to stop suggesting peace talks to the Ukrainian president. Vladimir Putin holds his annual press conference just days after one of his top generals was assassinated in Moscow.

Five more top stories

1. Joe Biden’s administration has unveiled tough new greenhouse gas emissions targets just weeks before Donald Trump’s inauguration. The upgraded targets are required by the UN in order for the US to meet its commitments under the 2015 Paris Agreement. Trump is widely expected to withdraw the US from international climate agreement when he returns to office next month. Here’s what the US government has committed to.

• More US politics news: Donald Trump yesterday attacked a bipartisan government funding deal as “foolish” and “inept”, killing the bill ahead of Friday’s deadline.

2. A French court has found Dominique Pelicot guilty of repeatedly drugging and raping his wife over decades, and inviting more than 50 men to participate in the abuse in their family home. Judges sentenced the 72-year-old Pelicot, who had admitted to the crimes, to the maximum penalty of 20 years in prison. Read more on the conclusion to a case that has shocked people around the world.  

3. Dealmakers are betting that a pick-up in so-called megamergers will gather pace under Donald Trump, after a rebound in larger deals helped push the value of takeovers back over the $3tn mark this year. The value of deals worth more than $5bn is up 19 per cent year to date. Here’s more on what dealmakers are saying about the outlook for next year.

4. EY has signed up its first new Dax-listed audit client since the collapse of payments group Wirecard despite a ban on winning auditing mandates from listed German companies. Qiagen, a biotech group listed in New York and Frankfurt, has hired the Big Four firm to be its new group auditor from January, highlighting the limitations of national audit regulation in Europe.

5. The US has stepped up its battle against Isis in Syria as it seeks to prevent the group exploiting a power vacuum after rebels toppled the Assad regime. In the past two weeks, US forces have struck more than 75 Isis targets during two waves of attacks targeting jihadi leaders and camps in the fractured Arab state, Middle East Editor Andrew England reports.

FT Person of the Year

The Financial Times made Donald Trump its “Person of the Year” in 2016, a month before his inauguration as US president. He would end his first term helping to goad a mob assault on Capitol Hill, and much of the world agreed at the time that he had been, in the words of Joe Biden, “an aberrant moment”. Then came the most dramatic political comeback in modern US history. This year, the FT has again picked Trump because of his remarkable return to power. It is no longer possible to dismiss him as a blip.

We’re also reading and watching . . . 

• AI regulation: The outgoing head of the US Department of Homeland Security told the FT that Europe’s “adversarial” relationship with tech groups was hampering a global approach to regulation.

• US Supreme Court: Justices have agreed to hear TikTok’s appeal against a divest-or-ban law that will determine the video app’s fate in the US. The case will begin on January 10.

• Canada: A government once seen as embodying hopes for the renewal of liberalism in western democracies is now teetering on the brink of collapse. Justin Trudeau should go, argues the FT’s editorial board.

DIY chart of the day

How well do you know the jobs market? Test your knowledge on trends such as hybrid schedules, the gender pay gap and AI hiring with the FT’s new “draw your own chart” game.

Take a break from the news

This year the FT’s Financial Literacy and Inclusion Campaign (Flic) has teamed up with the charity Magic Breakfast to create Feed the Future, a campaign designed to make sure every schoolchild starts the day with a nutritious meal as well as financial skills training. Donate here.