Weekly Macro Brief Ending December 10, 2025
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Fed will almost certainly cut – but the split and the path after that matter more than the cut itself: Both Wells Fargo and JPM AM expect a 25 bp cut this week to 3.50–3.75%, but flag unusually open dissent: several regional presidents may vote against easing, and at least one governor wants faster easing. The median 2026 dot is expected to stay around 3.375%, well above market pricing of multiple cuts. A cut with 3–4 hawkish dissents would be a hawkish outcome for markets and could push the next cut out to March or later. [WF][JPM-AM][CB]
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Growth is slowing, not stalling – services still carry the torch as goods, capex and labor cool: Q3 real GDP is tracking roughly 2½–3½% annualized, but Q4 looks close to zero as auto sales, “old-economy” capex (trucks, drilling, housing) and government output soften. Services and the consumer still drive growth, helped by 29 straight months of real wage gains, but payroll growth has practically stalled and unemployment has crept up to ~4.4–4.5%. [WF][JPM-AM][CB]
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Inflation is sticky around 3%: tariffs and energy on one side, rents and gas on the other: Headline and core inflation prints through September are roughly in line with expectations: CPI ~3%, PCE just above 3%. Tariffs are feeding into core goods, electricity and gas prices, but falling gasoline, soft travel/auto demand and rising rental vacancies are restraining overall inflation. JPM expects PCE to edge up slightly in early 2026 as tax refunds boost spending, then drift back toward (or slightly below) 2% by late 2026–27. [WF][JPM-AM][CB]
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Markets are priced for perfection: The S&P 500 is up ~17–18% YTD with earnings up ~13% in 2025 and 17% pencilled in for 2026, profit margins at a record ~13.6% – and valuations stretched: price/peak earnings ~26x (50% above median), price/sales at an all-time high, and CAPE around 40, a level only seen around 1999–2000. Historically, this combination implies lower long-run equity returns even if it tells you very little about the next 6–12 months. [CB]
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AI is now a genuine macro force – and a financing problem: BlackRock frames AI as “micro is macro”: an unprecedented, capital-intensive build-out front-loads capex and leverage while back-loading earnings and productivity gains. The bulls’ case (AI breaks the 2% U.S. growth trend) is now embedded in risk assets; any disappointment on growth, earnings or the ability to fund capex at current yields is a key macro risk. They stay pro-risk and overweight U.S. equities on the AI theme but underweight long bonds. [BLK][CB]
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