At the Federal Reserve's recent December FOMC meeting, gleeful investors walked away with a 25bps cut to the federal funds rate–the Fed's main rate used in monetary policy formation. Cheers from the lower rate loving administration, heavily indebted small caps, and policy doves ensued. Although, the main news permeating outlets over the past couple days wasn't about the cut (which many saw as a guarantee / already priced in), it was about something a bit more unexpected… The post meeting statement issued by the FOMC stated that the re-vamp of purchases of short-term Treasury securities is set to resume in early 2026, i.e., the renewal of quantitative easing (QE).
QE is one of the many tools in the Fed's policy tool-kit, by purchasing Treasury securities and other low-risk financial instruments the Fed aims to provide liquidity and needed demand to security markets. Keeping yields low by raising demand and thus price is also an occurrence amid periods of QE. Although, by artificially suffocating yields to low rates the Fed risks incentivizing profligate Treasury / government spending and promotes ever higher budget deficits as government debt is now easier to finance as a result of rock bottom yields.
On a separate albeit related note, amidst the fervor surrounding the appointment of the next Fed chair in early 2026, markets should be praying that the monetary policy setting institution stays independent from government influence and egocentric politicians looking for a short term boost to the economy–which is favorable for re-election during the 2026 midterms–at the expense of long term stability. Over the long term, the permittance of the overuse of QE will incentivize an ever growing budget deficit resulting in heightened inflation and lower trust / confidence in our government.
All this begs the question, does the Fed have too much power over the private market? I’ll let the reader decide…
Equity Insights
↓Oracle (ORCL): After the release of disappointing third quarter results on 12/10, Larry Ellison's prized possession dropped 14% in after-hours trading. Oracle has lost billions in market cap since reaching its climax earlier this year as investors seem acutely aware of the software company's peculiar load up of debt to finance its AI related cap-ex amidst lower asset prices. Is the Oracle story a canary in a coal mine, or just a one off?
Just a Thought…
Immigration, a highly argumentative, ultimately divisive, and ongoing debate topic surrounding the current administration is reaching a fever pitch as the Trump administration clamps down on illegal migrants with increased ICE patrol and stricter border enforcement. My aim here is to toss another thought into the mix, call it food for thought.
Over the past century, high immigration has been a mainstay in American policy even as some have tried to fight it. Over time, immigrants have promoted technological innovation, built successful new enterprises, and contributed mostly positively to American economics. Yes there have been bad actors, but data points overwhelmingly to the fact that migrants have contributed positively, we see that in data points such as… immigrants have paid more in taxes than they’ve consumed in benefits, and have committed less crime on average than native-born Americans. To further bolster America as an economic and innovative powerhouse, we need STEM-smart migrants. Lower legal immigration and high unlawful deportation will only serve to loosen our country's grip on the top ranks of innovation.
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