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Talk of the K-shaped economy is brewing once again. The moniker first gained traction in 2020 to describe the divergence between how rich and poor Americans were experiencing the pandemic recovery. Now, with consumption increasingly concentrated in the top echelons of wage earners, economists are concerned that the US economy finds itself in a top-heavy, unstable state.Federal Reserve officials, who have been trying to navigate between supporting an economy where hiring has weakened and putting some pressure on demand to cool still-high inflation, discussed this bifurcation when they met in October. At the time, Fed Chair Jerome Powell said he was seeing evidence of the split. Growing frustrations around the cost of living reverberated through the most recent US elections on November 4, swaying a number of high-profile races toward Democrats. What is a K-shaped economy? A K-shaped economy is one where two groups experience increasingly different circumstances. While higher-income consumers, who are benefiting from stock-market and home-price gains, continue to spend, lower-income individuals are cutting back as inflation eats into their spending power and the job market tightens. Over the past year, the ranks of those at the bottom of the K have increased as more Americans struggle to stay afloat. Is the US in a K-shaped economy right now? The US has experienced rising inequality for decades, but the difference in spending patterns among consumers that has unfolded in the past year is raising concern among some economists that the current balance might ultimately lead to a downturn. Consumer spending, which drives two-thirds of US economic activity, is more concentrated among the wealthiest 10% of Americans than ever before. About half of all spending is fueled by those earners, and the top 20% account for almost two-thirds of all spending. The bottom 80%, which made up nearly 42% of spending before the pandemic, now accounts for just 37% of it, according to Moody’s Analytics. Why is the lower part of the ‘K’ getting larger? Lower- and middle-income Americans have seen their spending power diminish as inflation in everything from groceries to home prices continues to rise. At the same time, their wage increases are barely keeping up with rising prices and, for the first time in Bank of America Institute data going back to 2016, wage gains for higher-income households are outpacing those of their low- and middle-income counterparts this year. What are the economic implications? Because so much of the wealth accumulation of the past few years has been driven by a surging stock market, economists fear that even a moderate drop in stocks could drive a rapid pullback in spending by the top 20%. That could reverberate to the rest of the economy, where many Americans already feel financially stressed, and lead to a recession. How is it shaping the political debate? Inflation was already a major driver of the 2024 presidential election, and the broader concept of affordability this year catapulted candidates including New York City’s Zohran Mamdani to victory. Mamdani centered his mayoral campaign on the housing crisis and child care costs, helping the young, little-known state lawmaker, a democratic socialist, win office in a city synonymous with capitalism. In New Jersey, Mikie Sherrill won her bid for governor campaigning in part on curbing rising electricity prices. And Virginia elected Abigail Spanberger as governor on a platform centered around the rising cost of living. Is a K-shaped economy different from a Jenga tower economy? Economist Peter Atwater, who in 2020 popularized the idea of a K-shaped economy, said the current state of the US economy more resembles “a top-heavy Jenga tower,” a reference to the game of stacked wooden blocks where players attempt to remove one block at a time and place it at the top of the tower without collapsing the entire structure. What is the Federal Reserve’s role? Federal Reserve officials often say that their main policy tool, the setting of interest rates, is too blunt to address inequality. It’s something better left to elected officials, who can enact policies to specifically tackle the problems that contribute to the income gap.Some experts take issue with that point of view. Economist Claudia Sahm argues that interest rates actually do contribute to inequality and could therefore help unwind some of the bifurcation. She points to research showing that spending by low-income consumers nearly flatlined in 2022, when the Fed started aggressively raising rates to try to bring down inflation. Those rate hikes led to higher credit-card rates, which in turn hurt low-income consumers’ ability to spend disproportionately. 

Silver jumped to a record, surpassing a peak set during a historic squeeze in the London market in October.Spot prices surged as much as 4.2% to about $55.66 an ounce. The white metal has been supported by rising hopes of a Federal Reserve interest-rate cut in December, inflows into bullion-backed exchange-traded funds and ongoing supply tightness.Friday also saw erratic price moves and thin liquidity in the silver market, after a chaotic hours-long halt to trading in futures on the CME’s Comex Exchange. By early morning US-time, most trading operations were back.Silver’s new high comes just over a month after a severe supply squeeze in the dominant silver trading hub in London last month, which sent prices soaring above levels in Shanghai and New York. While the arrival of nearly 54 million troy ounces has eased that squeeze, the market still remains markedly tight with the cost of borrowing the metal over one month hovering above its normal level.The flows into the London market have now put pressure on other hubs, including in China. Silver inventories in warehouses linked to the Shanghai Futures Exchange recently hit their lowest level since 2015, according to bourse data.“In the short term, a further price increase cannot be ruled out if registered silver inventories in China continue to decline,” analysts at Commerzbank AG wrote in a note earlier Friday.Traders are also monitoring any potential tariff on silver after the precious metal was added to the US Geological Survey list of critical minerals in November. While 75mn ounces have left the vaults of the Comex futures exchange in New York since early October, fears of a sudden premium for US silver have caused some traders to hesitate before shipping metal out of the country.Silver has surged almost 90% this year, as investors pile into alternative assets in a wider retreat from government bonds and currencies, dubbed the dabasement trade. Optimism about the metal’s fundamental supply and demand balance have also supported prices — the market is set to see a fifth consecutive supply deficit this year. Unlike gold, a large share of silver demand is industrial, with applications in solar photovolaics and electronics.Spot silver was 4.1% higher at $55.59 an ounce in London. Spot gold rose 1.2% to $4,207.68 an ounce. 

Investors are betting big that the Federal Reserve will cut interest rates again when policymakers meet next month, erasing doubts that had tipped the odds against a move as recently as last week and setting the stage for gains in US bonds.The amount of new positions held by traders in futures contracts tied to the central bank’s benchmark has surged in the past three trading sessions, with back-to-back record daily volumes seen in the January contract last week. Market pricing now signals roughly 80% certainty of a quarter-point move at the Fed’s December meeting, compared with 30% odds just days ago.The shift in rate sentiment started after last week’s delayed September jobs data, which painted a mixed picture. It then picked up steam on Friday after New York Fed President John Williams signalled he sees room for a reduction “in the near term” amid labour market softness.“The Fed is very divided,” but it looks like “doves have outnumbered hawks,” said Tracy Chen, a portfolio manager at Brandywine Global Investment Management.This week, San Francisco Fed President Mary Daly backed lowering rates at the next meeting, while Governor Stephen Miran on Tuesday reiterated his case for large interest-rate cuts even as inflation remains stubbornly above the central bank’s preferred level.Fed Chair Jerome Powell and his allies on the policy-setting committee are “on board with a cut,” despite pushback from other officials who are more concerned about inflation, said Subadra Rajappa, a strategist at Societe Generale. With recent soft economic data, including the labour market, “Powell will be able to convince the rest of the committee.”The dovish tone in futures is echoed in the cash Treasuries market, where this week’s client survey from JPMorgan showed net long positions rising to the most in about 15 years.On Tuesday, the 10-year US yield fell below 4% for the first time in a month, after White House National Economic Council Director Kevin Hassett emerged as the front-runner to serve as the next Fed chair, boosting expectations for lower rates over the next year. The yield was little changed at 4% on Wednesday.It’s normal for Fed officials to guide Wall Street toward their ultimate decision ahead of the meetings to avoid surprises. Only three times in more than two years — covering a total of 20 Fed meetings — have traders not fully priced in an outcome this close to a policy decision.The combined amount of new positions added in January fed funds futures has been close to 275,000 contracts since Thursday. That’s equivalent to approximately $11.5mn per basis point of risk, or 37% of the total open interest in the tenor as of Tuesday’s close. The contract rallied from as low as 96.18 Thursday to as high as 96.35 on Monday, signalling new long positions added.“The market largely viewed the comments from Williams as Powell playing his hand, so to speak,” said Blake Gwinn, the head of US interest rate strategy at RBC Capital Markets. “Data this week has leaned that way too.”While most Wall Street strategists are now calling for a December reduction, not all are as convinced as traders that it will happen. Those at Morgan Stanley last week scrapped their prediction for the central bank to ease, while JPMorgan Chase & Co also leans toward the Fed holding next month, “though December should remain a very close call.”“We continue to think they will cut in December, but I think after that the outlook is a little bit more uncertain,” said Tiffany Wilding, economist at Pacific Investment Management Co, on Bloomberg Television. “Overall the economy has held up remarkably well from a growth perspective this year, but nevertheless there are down side risks to the labour market and inflation appears to be kind of around 3%, clearly above the target.”Here’s a rundown of the latest positioning indicators across the rates market:JPMorgan Survey: For the week ended November 24, investors’ outright long positions rose 4 percentage points, to the most since April, pushing the net long positioning to the most since October 2010. Shorts dropped 1 percentage point on the week.New risk in SOFR options: In SOFR options out to the Jun26 tenor there has been a surge in open interest in the 96.25 strike, largely due to a big jump in positioning via Dec25 calls over the past week. The strike has been used across multiple structures targeting hedging around a 25bp rate cut at the December FOMC meeting, including SFRZ5 96.125/96.25 call spreads and SFRZ5 96.25/96.3125 call spreads. There has also been continued demand for SFRZ5 96.1875/96.25/96.3125/96.375 call condors. The SFRZ5 96.1875/96.25 call spreads have also been popular plays over the past week.Treasury options premium: The premium paid on options to hedge Treasuries over the past week has been steady around neutral level across the futures strip. Premium in the front and intermediates of the futures strip continues to slightly favour calls over puts, indicating traders paying more to hedge a Treasuries rally in the front end and belly of the curve versus a selloff. The December Treasury options expired November 21. 

Like everyone else, policymakers at the Federal Reserve are increasingly obsessed with artificial intelligence and its promise of a turbocharged economy. They’re just not ready to make a big call that the revolution is under way.Analysts across the financial world are scouring data for signs AI is making the economy more productive – the holy grail of new technology. The last sustained boost of that kind was the 1990s internet boom. Back then it shaped Fed policy: Chair Alan Greenspan reckoned innovation would allow faster growth without triggering inflation, and used that argument to keep interest rates down.Right now, US central bankers are in agreement that AI will be transformative — but essentially in “too early to tell” mode when it comes to how the effects will land. A more immediate concern is above-target inflation, leaving many policymakers opposed to rate cuts. Others put more weight on weak job markets and support further easing: AI’s ability to replace workers is part of that case, but not front-and-centre.Caution is par for the course, because technological leaps often take years to work their way through the economy and show up in data. But the Fed is under pressure at a pivotal time.Chair Jerome Powell’s term ends in six months. President Donald Trump says he’ll pick a successor committed to lower borrowing costs. Treasury Secretary Scott Bessent, who’s in charge of the selection process, says whoever gets the job should be open to making a Greenspan-style early call.In the first half of 2026, “AI implementation is just really going to start biting in terms of productivity,” Bessent told CNBC last month. “It would’ve been easy for Alan Greenspan to kill the internet boom, not be open to the idea that there was a productivity boom and slam on the brakes,” he said – adding that the next Fed chief should have “an open mind” on the topic.There are five names on Bessent’s shortlist. In recent weeks four of them signalled they’re receptive to his case.**media[385850]**Kevin Hassett, head of Trump’s National Economic Council, said AI is lifting worker productivity at a “remarkable rate”. BlackRock Inc executive Rick Rieder said “we are in a productivity revolution”. Former Fed Governor Kevin Warsh wrote in the Wall Street Journal that “AI will be a significant disinflationary force, increasing productivity and bolstering American competitiveness”.Current Governor Christopher Waller sounded a little more cautious, saying he has “no doubt” AI will boost the economy and is “hoping” for sustained productivity growth. The fifth candidate, Vice-Chair for Supervision Michelle Bowman, has tended to discuss AI more in the context of regulatory work she oversees.All of this suggests AI is set to take up an ever-growing share of Fed attention – and of course its implications for the economy go far beyond the central bank’s interest rates.The rush to develop AI is already driving a large portion of US growth, not to mention a stock market that many believe is in bubble territory. Businesses and consumers are rapidly adopting the technology. For the economy, as well as for equity valuations, the big question is: what’s the output from all these inputs?That boils down to productivity, or how much workers can produce using the available tools. Numbers are volatile and notoriously hard to parse, but they’ve picked up lately and some economists think it’s an early AI effect.The St Louis Fed has been asking workers in regular surveys how many hours they saved by using generative AI. Researchers found it may have boosted labour productivity by as much as 1.3% since the release of ChatGPT three years ago.“What surprised me was how clearly the signal is already appearing at the industry level,” says co-author Alexander Bick. “The correlation is already there.”For anyone trying to answer this key question — whether it’s Fed officials, corporate chiefs or investors — there’s a fundamental problem, according to Kristina McElheran of the University of Toronto, who studies AI and the future of work. There’s a lack of “nuanced, high-fidelity data on AI use by firms”, she says, while many of the headline-grabbing studies are based on “really questionable information”.“We are flying blind into this AI revolution,” McElheran says. “We don’t have the statistics that we need for policy. We don’t have the statistics we need for managers.” As a result, all modellers can do is “take past trends and try to fit them onto stuff that’s happening super-fast right in front of us”.Business owners who are adopting AI get the real-time view, and many see dramatic gains in productivity.Peter Capuciati’s company Bluon Inc has been building an AI model with a database that covers generations of HVAC equipment, using insights amassed by its own technicians answering several years’ worth of calls, as well as tens of thousands of manuals. Around 160,000 technicians now use the free version and some 13,000 pay for the full service. Capuciati reckons it can save them up to eight hours a week.“Techs don’t like to admit that they have a problem or they don’t know something,” Capuciati says. “So if they can go to an AI source and either confirm their assessment or be guided elsewhere, that’s a very time-saving process.”Christopher Stanton at Harvard Business School has been tracking Bluon’s deployment of AI. He sees it as a winning formula for higher productivity in an industry running low on skilled workers.“The machine is simply augmenting that human with information about how to do those things,” he said. “It’s a very powerful driver, especially in places where we think there are labour shortages.”There’s a darker flipside to that idea, which taps into some of the fears around AI. A technology that allows fewer workers to generate the same output could be an effective way to fill labour-market gaps — or a job-killer that leaves workers with nowhere else to go.Typically when the economy takes a technological leap forward it finds ways to redeploy labour. While the 1990s internet boom ended in a stock-market bust, its productivity legacy ran for around a decade and has yet to be matched.Back then, according to Julia Coronado, founder of Macropolicy Perspectives LLC, companies were taking advantage of innovations to expand employment. Now she says they’re more likely to be using AI to reduce their workforce.The Fed’s recent Beige Book surveys cite evidence that AI is a drag on hiring demand, especially for entry-level jobs. A Capital Economics study points out that the information tech industry, not surprisingly an early adopter of AI, has been chipping in a bigger chunk of US growth even as its payrolls shrink — evidence of productivity gains, but also of risks as the technology spreads.That’s something on the mind of Robert Gordon, a professor at Northwestern University and author of “The Rise and Fall of American Growth.” Gordon, who’s among the most-cited scholars of long-run economic trends, has often been sceptical about the ability of new inventions to deliver a growth payoff on the scale that older ones did.

Investors Tuesday welcomed more dovish comments from Federal Reserve officials reinforcing hopes it will cut interest rates next month, while a tech-led rally on Wall Street soothed recent AI bubble worries.In Tokyo, the Nikkei 225 closed up 0.1% to 48,659.52 points; Hong Kong - Hang Seng Index ended up 0.7% to 25,894.55 points andShanghai - Composite closed up 0.9% to 3,870.02 points Tuesday.After a swoon in recent weeks, optimism appeared to be returning to trading floors as the chances of a third successive reduction in US borrowing costs increases as a weakening labour market offsets stubbornly high inflation.Fed governor Christopher Waller told Fox Business on Monday that inflation was not his main worry and that his "concern is mainly the labour market, in terms of our dual mandate" of the Fed to support jobs and keep a cap on prices."So I'm advocating for a rate cut at the next meeting."His comments echoed those of San Francisco Fed president Mary Daly, who told the Wall Street Journal: "On the labour market, I don't feel as confident we can get ahead of it."She added that the risk of a bust higher in inflation was a lower risk as the impact of US President Donald Trump's tariffs had been less than expected.New York Fed boss John Williams said Friday that he still sees "room for a further adjustment" at the bank's December 9-10 policy meeting.Analysts pointed out that the lack of pushback from the Fed on the remarks suggested boss Jerome Powell backed them and was preparing for another cut.Traders now see about a 90% chance of a reduction, having been around 35% last week.The prospect of lower borrowing rates pushed Wall Street sharply higher for a second successive day Monday, with the S&P 500 up around 1.6%.The Nasdaq charged 2.7% higher thanks to a surge in market heavyweights including Alphabet, Meta and Amazon.And the gains continued in Asia, which built on Monday's strong performance.Tokyo, Hong Kong, Shanghai, Sydney, Seoul, Taipei, Mumbai, Bangkok and Jakarta all advanced, though there were pullbacks in Manila, Singapore and Wellington.London, Paris and Frankfurt opened higher.Tech firms have enjoyed a revival after suffering a period of selling in recent weeks, owing to concerns that the AI-led splurge this year may have pushed valuations too far and the huge investments made in the sector could take time to come to fruition.While there is debate about whether the advance has more legs, observers say the outlook is more nuanced."AI remains one of the most powerful forces reshaping markets, but the tone is changing," wrote Saxo Markets' Charu Chanana."Strong earnings from leading chipmakers... reassure investors that demand is real, yet the sharp swings in market reaction show that enthusiasm now sits alongside questions around sustainability, profitability, and execution."The broad 'everything goes up' phase of the AI trade is fading. What replaces it is a more nuanced market: one that rewards fundamentals over narratives."She added that investors now had to "separate the durable players from those caught up in the momentum".Sentiment was also given a lift after Trump praised "extremely strong" US-China relations following a call with his Chinese counterpart Xi Jinping.He also said he will visit China in April and that Xi will make a trip to Washington later in 2026.However, he made no mention of the fact that they had spoken about the ever-sensitive issue of Taiwan. China's foreign ministry said Trump had told Xi the United States "understands how important the Taiwan question is to China".The call came after the pair met in late October for the first time since 2019, engaging in closely watched trade talks between the world's top two economies.

Treasury Secretary Scott Bessent said that a key theme of his interviews for the next chair of the Federal Reserve has been simplifying the US central bank, which he indicated has become too complex in how it manages money markets.“One of the things in terms of the criteria that I’ve been looking for” has been the interplay of the Fed’s various instruments, Bessent said on CNBC on Tuesday. “I realise the Fed has become this very complicated operation.”Bessent said his final second-round interview with the five candidates to succeed Chair Jerome Powell will be today, and reiterated that President Donald Trump may make his announcement on the nomination before December 25. The administration has previously said the finalists are Fed Governors Christopher Waller and Michelle Bowman, former Governor Kevin Warsh, National Economic Council Director Kevin Hassett and BlackRock Inc executive Rick Rieder.The Fed now maintains a so-called ample reserves approach in controlling its policy interest rate, which involves holding a sizeable amount of Treasuries on its balance sheet. As part of the current operating system, it pays interest on the reserves that banks park with it, and for any cash that money market funds temporarily place at the Fed.“The Fed has taken us into a new regime — what is called ample reserves regime — and it looks like that might be fraying a bit here in terms of whether the reserves are actually ample in the system,” Bessent said.Policymakers last month decided to halt the contraction of the Fed’s balance sheet as of December 1 in an effort to ensure that liquidity remains “ample.” It had been shrinking its portfolio since June 2022 after its holdings of Treasuries and mortgage securities had soared during the Covid crisis.“There are all these facilities and operations, the standing repo facilities, and I think we’ve got to simplify things,” Bessent said. He didn’t specify how he thought the central bank ought to overhaul its current operations.The Standing Repo Facility allows eligible institutions to borrow cash in exchange for Treasury and agency debt. It has seen regular use in recent weeks, reaching $50.4bn on October 31 — the most since the tool was made permanent in 2021.“There’s this very complicated calculus between the monetary policy, the balance sheet and regulatory policy,” Bessent said. “And we’ve really emphasised in the interviews, what’s the interplay for that calculus?”The Treasury chief also said, “I think it’s time for the Fed just to move back into the background,” without detailing what that would entail. And he suggested central bankers may be speaking too often.“We just need to calm down all these speeches by these bank presidents that are just redundant,” Bessent said, appearing to single out reserve bank chiefs rather than Fed board members.He also suggested he had issues with some particular Fed presidents.“These regional presidents were supposed to be people from the district,” Bessent said. “And we’ve got at least three, maybe four, of the reserve banks where people were hired from outside the district. They don’t even live in their district. They commute back to New York.”The interest-rate-setting Federal Open Market Committee comprises seven governors and five reserve bank presidents — the New York Fed chief and four others on a rotating basis. The presidents, unlike the governors, aren’t nominated by the White House or confirmed by the Senate. The current roster of reserve bank presidents requires re-authorisation by the Fed board in a once-in-five-year exercise in February. The Atlanta Fed chief, Raphael Bostic, has said he plans to step down.Bessent also observed that “the governors seem to be leaning toward cutting rates.”Asked about Trump’s suggestion earlier this month that he would fire Bessent if the Treasury chief didn’t help secure lower rates, Bessent said, “If you were in the room, he was joking.”

Division at the Federal Reserve has intensified in recent weeks, with officials staking out disparate positions ahead of the central bank’s December policy meeting — all while Chair Jerome Powell stays silent. The drama was amped up on Friday when New York Fed President John Williams, sometimes seen as a proxy for the Fed chief, signalled his support for a rate cut after several other policymakers came out leaning against one.Powell himself hasn’t spoken publicly since the central bank’s last rate decision on October 29. But a tally of recent remarks suggests the other voting members of the rate-setting Federal Open Market Committee are now nearly evenly split over what to do, all but ensuring some will vote against the December 10 decision regardless of the outcome.Once a rarity under Powell, dissents have increased this year. As officials wrestled with competing objectives of supporting a flagging labour market and keeping inflation in check, there hasn’t been a unanimous vote since June. The government shutdown, which delayed several key economic data releases, further complicated their ability to agree on which goal to prioritise. “By Powell not being out there right now, he’s letting every single member of the Open Market Committee have a voice and be listened to,” said Claudia Sahm, chief economist at New Century Advisors and a former Fed economist. “He’s giving them space to have this disagreement, and that’s actually a good thing because this is tough and you should have these debates.” The recent back-and-forth has scrambled market bets on the next rate move, as traders attuned to the Fed’s consensus view are now counting votes among individual policymakers.Heading into the October policy meeting, investors saw a December rate cut as a sure thing. Odds plunged following the outburst of hawkish sentiment, briefly falling below 30%, according to pricing in federal funds futures. But they rebounded above 60% after Williams’ remarks on Friday. The central bank has long prided itself on making rate decisions by consensus, and it’s been a hallmark of Powell’s tenure at the helm, which began in 2018 and is set to conclude in May.The resulting low number of dissenting votes at the Fed’s eight annual policy meetings telegraphs confidence in their decisions, and some research suggests it ensures clear and effective communication of the committee’s intentions. But critics argue it also leads to “group-think” that suppresses potentially important arguments. “On the group-think thing, people who are accusing us of this, get ready. You might see the least group-think you’ve seen from the FOMC in a long time,” Fed Governor Christopher Waller said Monday.Waller dissented from the Fed’s decision to hold rates steady in July along with his colleague Michelle Bowman — the first time two Fed governors had voted against the chair in 32 years. At the following meeting in mid-September, Governor Stephen Miran — who joined the Fed board that month after being nominated by President Donald Trump — voted against his colleagues’ decision to lower rates by a quarter point, instead favouring a bigger rate reduction. At the Fed’s October 28-29 meeting, Miran dissented again for the same reason, while Kansas City Fed President Jeff Schmid dissented in the opposite direction.Schmid wanted to hold rates steady, arguing that further cuts could reignite inflation. That’s a sentiment that’s been expressed by more and more Fed policymakers in the weeks since. Five of the 12 officials who vote on policy this year have indicated they’re leaning toward keeping rates on hold next month. “We need to be careful and cautious now about monetary policy,” Fed Governor Michael Barr, who in the past has leaned toward providing support for the labour market, said this week.Other past doves have also indicated they might be more comfortable holding rates steady next month. They include Chicago Fed President Austan Goolsbee, who hasn’t dissented in his nearly three years at the Fed, but said he would if he felt like he needed to. “If I end up feeling strongly one way, and it’s different from what everybody else thinks, then that’s what it is. That’s fine.I think that’s healthy,” Goolsbee said Thursday in a call with reporters. “I don’t think there’s anything wrong with dissenting.” He acknowledged there have been more dissents this year than in recent Fed history, but also called that healthy. It’s not unprecedented in the longer arc of the central bank’s existence.Dissents abounded in the 1980s, when the Fed lifted rates to punishingly high levels in order to bring down high inflation, and in the 1990s when lingering anxiety about price pressures had many policymakers concerned about easing too much. “Uncertainty is a pervasive feature of the macro economy and monetary policymaking,” Dallas Fed President Lorie Logan said Friday. “A policymaker cannot know with certitude the current state of every relevant aspect of the economy, let alone exactly how every part of the economy works or what shocks may arrive.Yet policymakers must still make policy decisions.” The December decision is shaping up to be the closest call in years. Some, like Deutsche Bank Senior Economist Brett Ryan, believe Williams locked in a cut with his Friday remarks. Others aren’t so sure. “I really think it’s still a coin flip,” said Sahm.

Bond traders have pushed back against Federal Reserve officials urging them to use a key borrowing facility, complicating the central bank’s efforts to ease strains in the $12tn market for repurchase agreements. Primary dealers representing Wall Street banks told the officials at a meeting last week that borrowing directly from the central bank still carries a stigma and could be seen as a sign of trouble.That’s one reason they’ve been reluctant to use the Standing Repo Facility (SRF), according to people familiar with the discussion, who asked for anonymity to discuss details of private conversations. Others pointed to operational and balance-sheet constraints that made it difficult to access the facility, which was set up by the Federal Reserve in 2021 to serve as a backstop in money markets.The discussion on November 12 unfolded on the sidelines of a Treasury conference where New York Fed President John Williams and System Open Market Account manager Roberto Perli reiterated the facility’s importance as a monetary-policy tool. “It is best thought of as a way of making sure that the overall market has adequate liquidity consistent with the FOMC’s desired level of interest rates,” Williams told the conference, adding that use of the facility had been rising. “I fully expect that the SRF will continue to be actively used in this way and contain upward pressures on money market rates.” Williams then convened the New York Fed’s primary trading counterparties “to continue engagement on the purpose of the Standing Repo Facility as a tool of monetary policy implementation and to solicit feedback that ensures it remains effective for rate control,” according to a spokesperson.The primary dealers come from a group of financial institutions that trade government securities directly with the central bank. Short-term borrowing markets have been in the spotlight in recent weeks, as ebbing liquidity has kept rates stubbornly elevated and the Fed is scheduled to conclude its balance sheet unwind on December 1.Policymakers had anticipated that dwindling bank reserves would push up funding costs, eventually spurring more counterparties to use the SRF — a process that, in theory, would help keep a lid on repo rates. But while usage has increased periodically, officials said a notable amount of transactions still occur above the facility’s offering rate of 4%, according to Perli, suggesting dealers are hesitant to tap it.That has spurred calls on Wall Street for a more forceful response from the central bank to ease the pinch in a market that serves as a critical source of day-to-day funding. Dealers have floated ideas to make the facility more attractive, including allowing its transactions to be centrally cleared through the Fixed Income Clearing Corporation, according to the people familiar with the discussions.Since its inception as a permanent facility in July 2021, the SRF has been criticised by market participants for structural issues that make it inconvenient to use. “There were problems with the SRF from the beginning,” Curvature Securities executive vice president Scott Skyrm wrote in a note to clients on Monday. “The Fed added an 8:30am auction which helped with a timing issue, but primary dealers are still reluctant to use the facility and seem to want excessive spreads to intermediate.” For one, borrowing directly from the Fed requires banks to hold more capital against their positions than is required with some alternative repo trades.That means SRF transactions take up more room on the banks’ balance sheets, adding to the perception that they’re inefficient. The results of the Fed’s latest Senior Financial Officer survey released in March showed institutions rated public disclosures of counterparty information as the “most discouraging factor” in their decision-making around participating in the twice-daily operations.Some respondents added that transactions required approval from either funding desk management or even bank executives. At the meeting earlier this month, dealers told officials they should be communicating with bank executives about the issues instead, the people familiar with the discussion said.The Fed’s Perli underlined the importance of the SRF in public remarks at the conference in New York last week. “Stable, efficient and well-functioning repo markets are in everyone’s best interest and vital for ensuring rate control, and the SRF is a crucial tool in supporting those objectives,” he said. Institutions last month tapped the facility for a total of $50.4bn on the final trading day of October.That was the highest level since before the daily operations were made permanent more than four years ago as the result of the liquidity drain in the funding markets. Yet Dallas Fed President Lorie Logan said last month she was disappointed to see rates on a large share of tri-party repo transactions exceed the SRF rate during the final week of October.Logan, who before becoming president of the Dallas Fed in 2022, spent her career on the markets desk at the New York Fed, has urged the central bank to strengthen its tools. For Blake Gwinn, head of US interest rate strategy at RBC Capital Markets, part of the problem with SRF lies in its structure, which requires transactions to be run through banks’ treasury desks rather than as a typical repo operation. “Part of the original sin is the SRF is never what it should be,” he said “It was framed as a bank alternative to reserves, but it should’ve been a repo operation to begin with.”

Former Federal Reserve Governor Adriana Kugler abruptly resigned after Chair Jerome Powell refused to grant her a waiver to address financial holdings that ran afoul of the central bank’s ethics rules, according to a Fed official.Kugler also faced a probe by the Fed’s internal watchdog related to her recent financial disclosures before stepping down in August, according to a document released Saturday.Fed ethics officials declined to certify Kugler’s latest disclosures, which were posted on the website of the Office of Government Ethics, and referred the matter to the board’s inspector general, the document showed. The OGE also declined to certify Kugler’s newly released disclosures.The disclosures revealed details related to financial activity that violated the Fed’s internal ethics rules.Kugler announced on August 1 that she would resign effective August 8, without citing a reason and after she missed the central bank’s July 29-30 policy meeting. At the time, the Fed said her absence from the meeting was due to a “personal matter.”Ahead of that meeting, Kugler sought permission to conduct financial transactions to address what the Fed official described as impermissible financial holdings. It wasn’t immediately clear which holdings were involved in that request.According to the official, Kugler asked for a waiver to rules requiring top Fed officials to obtain clearance before conducting certain financial transactions and prohibiting them from trading during so-called blackout periods which straddle their policy meetings. Powell denied the request.The newly released documents revealed previously undisclosed trading in individual stocks in 2024, which is prohibited for Fed officials and their immediate family members, including Materialise NV, Southwest Airlines, Cava Group, Apple and Caterpillar.Some of the prohibited trades also represented violations for having been executed during blackout periods straddling each policy meeting during which no transactions are allowed.That included the purchase of Cava shares on March 13, 2024, days ahead of a March 19-20 meeting and the sale of Southwest shares on April 29, 2024, on the eve of the Fed’s April 30-May 1 gathering. The disclosure also lists several fund transactions that fell within blackout periods.A footnote connected to the January 2, 2024 sale of Materialise NV shares read: “Consistent with her September 15, 2024, disclosure, certain trading activity was carried out by Dr Kugler’s spouse, without Dr Kugler’s knowledge and she affirms that her spouse did not intend to violate any rules or policies.”Kugler, who was appointed to the Fed in September 2023 by President Joe Biden, declined to comment.In the financial disclosure released Saturday, Fed ethics official Sean Croston said, “Consistent with our standard practices and policies, matters related to this disclosure were referred earlier this year by the Board’s Ethics Office to the independent Office of Inspector General for the Board of Governors of the Federal Reserve System.”The financial disclosure, which was submitted roughly a month after Kugler’s departure, covered calendar years 2024 and 2025 through her resignation. Top Fed officials are required to submit disclosures annually and after leaving the central bank, and to report periodic financial transactions.In periodic financial disclosures during 2024, Kugler acknowledged that she had run afoul of Fed investment and trading rules when her spouse completed four purchases of shares of Apple and Cava Group Inc.Those trades violated the central bank’s rules that limit how senior Fed officials, their spouses and minor children invest and trade.Kugler said her spouse made the purchases without her knowledge. The shares were later divested and Kugler was deemed in compliance with applicable laws and regulations by the Fed’s designated ethics official, according to the disclosures.Kugler’s resignation gave President Donald Trump an earlier-than-expected opportunity to fill a slot on the Fed’s board in the midst of his intense pressure campaign urging policymakers to drastically lower interest rates. The opening ultimately went to Trump ally Stephen Miran, who took an unpaid leave of absence from his post as a White House economic adviser and has called repeatedly for rapid rate cuts.Powell introduced tougher restrictions on investing and trading for policymakers and senior staff at the central bank in 2022. That followed revelations of unusual trading activity during 2020 by several senior officials.Boston Fed President Eric Rosengren and Dallas Fed chief Robert Kaplan each announced their early retirement after the revelations, with Rosengren citing ill health. The Fed’s internal watchdog ultimately cleared the pair of legal wrongdoing, but chastised them for undermining public confidence in the central bank.The new rules, which the Fed said at the time were aimed at supporting the public’s confidence in the impartiality and integrity of policymakers, boosted financial disclosure requirements, among other measures.

QNB expects the US Federal Reserve (Fed) to 'moderately' continue with its easing cycle, cutting the Fed funds rate twice more to 3.5%. Below trend labour and capacity utilisation justify continued policy rate cuts, while limited downside potential places the adequate floor to rates around neutral levels, QNB said in an economic commentary. The Fed is once again at the forefront of the global macro agenda, after a period dominated by US-driven trade negotiations, fiscal debates and geopolitical conflict. Economic policy uncertainty has been reduced significantly on the back of a plethora of trade deals and a less contentious fiscal framework from the Trump administration. Importantly, inflation uncertainty has also been reduced as prices are proving to be less responsive to higher tariffs than previously expected. However, despite the significant stabilisation of the overall policy environment, monetary policy is becoming a more contested space. While the Federal Open Market Committee (FOMC) of the Fed decided for another 25 basis points (bps) rate cut late last month, continuing with the easing cycle that started in September 2024 and resumed this September after eight months of pause, there is clearly significant dissent amongst FOMC Board members. In fact, during the last FOMC meeting, Fed Governor Stephen Miran dissented in favour of a larger 50 bps cut, whereas Kansas City Fed President Jeffrey Schmid dissented in favour of no reductions at all. This “two-sided” dissent is a very rare occurrence in a historically more consensus-prone Fed. Moreover, there seems to also be widening differences in conviction about the timing and even direction of Fed fund rates between markets and policymakers going forward. Investors are currently expecting the Fed to continue with the rate cutting cycle that started in September 2024, with one more 25 bps cut “priced in” for December 2025 and three further rate cuts throughout 2026, for a cyclical terminal rate of around 3%. But Jerome Powell, the Fed’s chairman, is less certain about this outcome, stating recently that further policy rate cuts are far from a foregone conclusion. In QNB’s view, there is space for two more 25 bps rate cuts, likely in December and again in early 2026. Hence, it believes that both the “hawkish” central bankers that want to pause again the monetary easing cycle and their “dovish” colleagues that advocate for much deeper rate cuts are likely too aggressive in their positions. Similarly, prevailing market expectations are likely too optimistic in their assessment about four further cuts to a 2026 end-year rate of 3%. Two main points sustain our view **media[382145]** First, we believe that there is still more room for a couple more rate cuts because current policy rates are still too tight vis-à-vis existing macro conditions in the US. At 4%, policy rates are restrictive or around 50 bps above what we consider to be the neutral rate, i.e., the level at which rates are neither supportive nor restrictive for activity. US capacity utilisation, measured in terms of the state of the labour market as well as the level of industrial activity, indicates that the US economy is set to run below potential. In H2-2025, for the first time in more than four years, the “jobs gap” is suggesting that the labour market is loose rather than tight, i.e., the sum of job openings and employment is lower than the total civilian labour force. This is because new job openings have been reduced significantly from more than 12mn new posts per month in early 2022 to around seven million in recent months. Importantly, coincident labour data from private sources are indicating an accelerating trend of US layoffs. US based employers cut more than 150 thousand jobs in October, marking the biggest reduction for the month in more than two decades, as companies are seeking to reduce costs, mitigate tariff-related margin pressures and increase efficiency with AI adoption. Moreover, industrial activity is running below its long-term trend. These conditions, that together inform QNB’s US capacity utilisation index, point to below potential growth and support additional rate cuts to neutral levels over the coming quarters, i.e., policy rates that are at the estimated neutral threshold of around 3.5%. Second, while there is room for additional policy easing, the further deeper cuts supported by the “dovish” members of the Fed and expected by markets seem to be too aggressive. The US economy adjusted significantly and slowed down from close to 3% growth in both 2023 and 2024 to around 2% growth this year. But there is little evidence of an incoming sharper downturn or deterioration, not to mention any potential recession. Investments have been strong on the back of record capex from tech companies seeking to lead the AI wave, whereas consumption has been slowing only gradually as US households still benefit from their strongest net financial position in decades. In other words, in the absence of new negative shocks, further downside pressure for US growth is limited. Hence, there appear to be no justification to reduce the policy rate further from neutral down to accommodative levels, QNB said.

Gold prices declined on Monday, weighed down by a stronger US dollar as investors scaled back expectations for further Federal Reserve interest rate cuts following hawkish remarks by Chair Jerome Powell last week. Easing US-China trade tensions also pressured bullion.Spot gold fell 0.8% to $3,968.76 per ounce, while US gold futures for December delivery slipped 0.5% to $3,978.30 per ounce. The US dollar held firm near its three-month high reached last week, making the greenback-priced metal more expensive for holders of other currencies.The US Federal Reserve cut interest rates on Wednesday by 0.25 percentage point, marking its second rate cut this year, bringing the benchmark overnight rate to a target range of 3.75%-4.00%. Among other precious metals, spot silver dropped 0.5% to $48.41 per ounce, platinum eased 0.1% to $1,566.40, and palladium declined 0.6% to $1,424.88.

Gold prices extended their decline on Wednesday amid profit-taking following recent record highs, as investors awaited key US inflation data this week for further indications on the Federal Reserve's potential path toward interest rate cuts. Spot gold fell 0.3% to $4,113.54 per ounce, after plunging more than 5% on Tuesday — its sharpest daily drop since August 2020. Meanwhile, US gold futures for December delivery rose 0.5% to $4,129.80 per ounce. Despite the recent correction, gold prices have surged about 56% so far this year, hitting an all-time high of $4,381.21 on Monday. The rally has been driven by heightened geopolitical and economic uncertainty, growing expectations of interest rate reductions, and sustained central bank demand for the yellow metal. Among other precious metals, spot silver fell 0.9% to $48.29 per ounce, platinum dropped 1.1% to $1,534.44, while palladium was steady at $1,406.76 per ounce.