Given that Powell and his pals were flying blind into this meeting, just how will he defend his actions (and hint at his outlook) considering it exposes even more guesswork among the groupthinkers than normal.

Powell’s previous comments were the hawkish signal that sank stocks and bonds and needed Fed’s Williams to stop the pain…

Will Powell let the Dots do the talking – not as hawkish as was expected?

Or will he help spoil the Christmas party with his own brand of bah, humbug?

Watch Fed Chair Powell’s last press conference of 2025 (due to start at 130ET):

Gunboat diplomacy was on full display Wednesday afternoon after Bloomberg reported that U.S. forces intercepted and seized a sanctioned Venezuelan oil tanker off the coast of Venezuela. This move underscores the Trump administration’s Monroe-2.0 posturing as Washington seeks to reassert control over the Western Hemisphere after years of neglect.

Bloomberg cited sources who did not disclose the tanker’s name or the general area where U.S. military forces seized the vessel.

The move here is a foreign policy tactic known as gunboat diplomacy. It’s where the U.S. military has stationed warships, jets, bombers, and troops that are to push the Maduro regime into complying with U.S. demands.

On Tuesday, Trump told Politico that Venezuelan President Nicolás Maduro’s “days are numbered” …

Trump was asked whether the U.S. could send in troops on the ground. The president said, “I don’t comment on that.”

“I wouldn’t say that one way or the other,” he said, going on to criticize Maduro.

Polymarket odds for “US x Venezuela military engagement by March 31, 2026” surged on the news…

Simultaneously, the Pentagon has ramped up strikes on drug-trafficking vessels in waters near Venezuela and Colombia, killing at least 80 in the process. The Trump administration is hell-bent on dismantling the command-and-control structures of narco-trafficking routes that funnel illicit drugs into the U.S. and have contributed to the drug-death catastrophe that kills 100,000 Americans per year.

*Developing…

Tl;dr: The FOMC cut rates by 25bps to 3.50-3.75% as expected, with a 9-3 vote split; Miran sought a 50bps cut, while Goolsbee and Schmid preferred no change.

• It reiterated data dependence, signalling further adjustments will hinge on the evolving outlook, labor market conditions, inflation dynamics, expectations, and global and financial developments.

• Policy guidance was tweaked, changing the the phrase “in considering additional adjustments” becomes “in considering the extent and timing of additional adjustments.”

• In its updated Statement of Economic Projections (SEP), the Fed Funds projections were essentially unchanged, signalling steady expectations for a gradual return toward the longer-run rate. However, the 2025 dot plot composition shows six members’ projected rates at the end of 2025 at 3.75-4.00%, indicating that four non-voters would have voted to keep rates on hold at today’s meeting if they had voting rights.

• The Fed noted slower job gains and a slight rise in unemployment through September. Compared with October, the December statement updates the labor-market reference by replacing “the unemployment rate has edged up but remained low through August” with “the unemployment rate has edged up through September.” Unemployment forecasts are only marginally firmer in the out-years, suggesting a more resilient labor market.

• Inflation has increased since earlier in the year and remains somewhat elevated. Core PCE expectations have eased modestly, indicating a marginally softer inflation path and slightly more confidence in disinflation over the forecast horizon.

• Economic activity is described as expanding at a moderate pace, with uncertainty around the outlook still high and downside risks to employment having risen recently. The December SEP projects a stronger increase in 2026 GDP compared to the Sept SEP.

• The Fed said reserve balances have declined to ample levels and will use shorter-term Treasury purchases when needed to maintain sufficient reserves. October’s balance-sheet guidance, “the Committee decided to conclude the reduction of its aggregate securities holdings on December 1″ is removed; instead, December adds new guidance: “the Committee judges that reserve balances have declined to ample levels and will initiate purchases of shorter-term Treasury securities as needed to maintain an ample supply of reserves.”

* * *

Since the last FOMC meeting (on October 29th), The Fed has largely been flying blind from a macro data perspective (thanks to the government shutdown) with the sporadic ‘hard’ data outperforming while ‘soft’ data has shit the bed and alternative labor market insights remain mixed at best (and extremely lagged at worst)…

Source: Bloomberg

Interestingly, it is labor market data that has ‘outperformed’ since the last FOMC (so the hawks have a point) while surveys and inflation data has faded (doves can point to)…

Source: Bloomberg

Gold has been the biggest gainer since the last FOMC as bonds and crude oil plunged. Stocks and the dollar are basically unchanged…

Source: Bloomberg

Rate-cut odds have been jawboned wildly since the last FOMC, tumbling on Powell’s hawkish bias (and plunging later on follow-on hawkish FedSpeak) only to surge back to a lock (100%) following Fed’s Williams dovish comments right before the blackout began…

Source: Bloomberg

Today, we also get a fresh set of Dots, which many expect to shift more hawkishly. As the chart below shows, the market is already dramatically more dovish than the ‘old’ Dots…

Source: Bloomberg

The number of dissents will be on many people’s watchlist with WSJ’s Fed Whsiperer, Nick Timiraos, noting that “as many as five of the 12 voting members of the Fed’s policy committee, and 10 of all 19 members, have signaled in speeches or public interviews that they didn’t see a strong case to cut. Of those, only one formally dissented from the central bank’s decision to cut rates in October.”

Hey @AskPolymarket what are the odds December FOMC meeting will have 4 dissenters or more.

— zerohedge (@zerohedge) November 21, 2025

The market is expecting 3 or more dissents…

So, we have five things to watch in today’s Fed discussions: Rate-change (cut is a done deal, but then what), Dissents (record split), Dots (hawkish bias), Balance Sheet (QE begins?), Presser (hawkish?).

FOMC

As was 100% expected, The Fed cut rates…

• *FED CUTS BENCHMARK RATE TARGET RANGE TO 3.5%-3.75% IN 9-3 VOTE

But, also – as expected – there were dissents… the most since 1988

• Fed Governor Stephen Miran voted against the decision in favor of lowering rates by a half-point, while Kansas City Fed President Jeff Schmid and Chicago Fed President Austan Goolsbee dissented in favor of holding rates steady

FORWARD GUIDANCE (flying blind?):

• Fed to assess incoming data, evolving outlook and balance of risks in considering extent and timing of further adjustments

• Fed says it will monitor implications of incoming information for economic outlook

• Fed prepared to adjust policy stance if risks emerge impeding goal attainment

• Fed assessments to consider labor market conditions, inflation pressures, inflation expectations, financial and international developments

LABOR MARKET

• Fed says job gains slowed and unemployment edged up through September

INFLATION

• Fed says inflation moved up since earlier in year and remains somewhat elevated GDP GROWTH

• Fed says economic activity expanding at a moderate pace

BALANCE OF RISKS

• Fed says uncertainty about economic outlook remains elevated

• Fed judges downside risks to employment rose in recent months

But the “Dot plot” of rate projections did not signal a much more hawkish trajectory:

The median official expected to lower rates by a quarter-point in 2026 and another quarter-point in 2027, the same as they projected in September

In fact, arguably 2026 dots show a very slight dovish tilt from September (with the number of Fed voters wanting no cuts or a hike down from 8 to 7…

BALANCE SHEET (full details here)

• On December 10, 2025, the Federal Open Market Committee (FOMC) directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to increase System Open Market Account (SOMA) securities holdings to maintain an ample level of reserves through purchases in the secondary market of Treasury bills (or, if needed, of Treasury securities with remaining maturities of 3 years or less).

• These reserve management purchases (RMPs) will be sized to accommodate projected trend growth in the demand for Federal Reserve liabilities as well as seasonal fluctuations, such as those driven by tax payment dates.

• Monthly amounts of RMPs will be announced on or around the ninth business day of each month alongside a tentative schedule of purchase operations for the subsequent approximately thirty days.

• The Desk plans to release the first schedule on December 11, 2025, with a total amount of RMPs of approximately $40 billion in Treasury bills; purchases will start on December 12, 2025.

• The Desk anticipates that the pace of RMPs will remain elevated for a few months to offset expected large increases in non-reserve liabilities in April. [ZH: and in May Powell is out and Trump replaces him with a dovish surrogate].

• After that, the pace of total purchases will likely be significantly reduced in line with expected seasonal patterns in Federal Reserve liabilities. Purchase amounts will be adjusted as appropriate based on the outlook for reserve supply and market conditions.

• The Desk was also directed in October to reinvest all principal payments from the Federal Reserve’s holdings of agency securities into Treasury bills via secondary market purchases. The monthly schedule of planned purchases will include RMPs as well as these purchases.

• The Desk plans to distribute the monthly secondary market purchases across two Treasury bill sectors. Purchase amounts in each sector will be determined by sector weights. These sector weights will be based on the 12-month average of the par amount of Treasury bills outstanding in each sector relative to the total amount outstanding across the two sectors as initially measured at the end of September 2025.

For the purists this is “Reserve Management Purchases”, for the non-purists, QE is back with us.

SEP PROJECTIONS:

Fed Funds

• 2025: 3.625% (exp. 3.625%, prev. 3.625%)
• 2026: 3.375% (exp. 3.375%, prev. 3.375%)
• 2027: 3.125% (exp. 3.125%, prev. 3.125%)
• 2028: 3.125% (exp. 3.125%, prev. 3.125%)
• Longer run: 3.00% (exp. 3.125%, prev. 3.00%)

GDP Growth

• 2025:1.7% (exp. 1.8%, prev. 1.6%)
• 2026: 2.3% (exp. 1.8%, prev. 1.8%)
• 2027: 2.0% (exp. 1.9%, prev. 1.9%)
• 2028:1.9% (exp. 1.8%, prev. 1.8%)
• Longer run: 1.8% (exp. 1.8%, prev. 1.8%)

Unemployment rate

• 2025: 4.5% (exp. 4.5%, prev. 4.5%)
• 2026: 4.4% (exp. 4.5%, prev. 4.4%)
• 2027: 4.2% (exp. 4.4%, prev. 4.3%)
• 2028: 4.2% (exp. 4.2%, prev. 4.2%)
• Longer run: 4.2% (exp. 4.2%, prev. 4.2%)

PCE Inflation

• 2025: 2.9% (exp. 2.9%, prev. 3.0%)
• 2026: 2.4% (exp. 2.6%, prev. 2.6%)
• 2027: 2.1% (exp. 2.1%, prev. 2.1%)
• 2028: 2.0% (exp. 2.0%, prev. 2.0%)
• Longer run: 2.0% (exp. 2.0%, prev. 2.0%)

Core PCE Inflation

• 2025: 3.0% (exp. 3.0%, prev. 3.1%)
• 2026: 2.5% (exp. 2.6%, prev. 2.6%)
• 2027: 2.1% (exp. 2.2%, prev. 2.1%)
• 2028: 2.0% (exp. 2.1%, prev. 2.0%)

Finally, in a difference from the state of play into December 2024’s hawkish cut, we note that equity positioning into the Fed looked skewed toward expectations for a benign or mildly hawkish cut that leaves the high-beta rotation intact, with the SPX still contained in a wider trading range.

Implied, realized and vol-of-vol are all back at more normal levels after November’s turbulence, while correlations and the tail-risk indexes sit in the middle or lower end of recent bands. The SPX term structure was in gentle backwardation into the FOMC, with forward implied vols pointing to only a modest post-meeting decline due to the importance of next week’s CPI and jobs report data.

SPX options are pricing a +/-0.7% move for FOMC day, largely in-line with expectations ahead of the past 8 FOMC events (+/-0.8%).

Will we get a surprise?

On average, the S&P 500 has moved +/-0.6% during the last 8 FOMC meetings with realized moves coming lower than expectations during all events except the December FOMC (hawkish cut) which saw an outsized move (-2.9%) relative to unusually low expectations (+/-0.7%).

Read the full red-line below…

Authored by Melanie Sun via The Epoch Times,

The Federal Transit Authority has threatened to withdraw funding for Chicago’s public transport network if the city doesn’t “measurably reduce assaults on transit workers and passengers” and address “unsafe conditions that have contributed to increased crime.”

FTA Administrator Marc Molinaro on Dec. 8 sent letters to Chicago Mayor Brandon Johnson and Illinois Gov. JB Pritzker, outlining a Dec. 15 deadline for the Chicago Transit Authority (CTA) to develop a “verifiable security enhancement plan” to be implemented in full across the CTA’s bus and rail system by Dec. 19 or risk cuts to federal funding.

The special directive also ordered the CTA to update its public transportation agency safety plan by the end of December and share that plan with the FTA within seven days of approval by the CTA’s Transit Board Committee.

The CTA is an FTA-regulated transit agency and must comply with the FTA’s safety oversight through special directives by the specified deadlines. Otherwise, it could face up to 25 percent cuts in federal funding under the Urbanized Area Formula Grants program authorized by statute 49 U.S.C. § 5307.

In the letters, Molinaro cited an attack last month in which 26-year-old female commuter Bethany MaGee was set on fire while traveling on a Chicago train, leaving her with life-threatening burns. She survived but remains hospitalized, with years of surgeries ahead of her.

Police arrested 50-year-old Lawrence Reed of Chicago the next morning. He was charged with committing a terrorist attack. Molinaro said in the letter that Reed was previously arrested 72 times.

He was on pretrial release at the time of the attack. Molinaro said in the letter that Reed was released after being charged with assaulting a social worker in August. Online court records did not list an attorney for Reed.

“Illinois is notorious for being the first state in the U.S. to impose a deadly cashless bail policy that allows alleged criminals to be released from jail without paying any money while they await trial,” the FTA said in a statement.

The Cook County chief judge’s office, when asked to comment on the case, pointed to a state law that limits judges’ ability to deny the release of defendants ahead of their trials.

Molinaro said the “preventable” attack on MaGee was not an isolated incident, pointing to “high crime rates on CTA property.”

A Chicago Transit Authority train pulls into the new Damen Ave. station just two blocks from the United Center on Aug. 12, 2024. Charles Rex Arbogast/AP Photo

This included reports to the FTA of a violent crime rate four times higher than the national average, marked by four homicides in the past 18 months and a more than doubling of assaults against workers and riders in the last five years.

The attack “reflects systemic failures in both leadership and accountability on all levels that cannot be tolerated,” Molinaro wrote. “I will not accept the brutal assault of an innocent 26-year-old woman as an inevitable cost of providing public transportation.”

The FTA administrator said if the CTA does not quickly increase its law enforcement presence, the FTA will act, “including by withholding federal funds.”

“Transit leaders and elected officials who fail to enforce basic laws and permit disorder to erode the integrity of their systems are making deliberate choices that endanger riders,” he said.

Johnson told reporters Dec. 9 that his office will respond to the Federal Transit Administration letter.

“We do have to look at what the security apparatus looks like for public transportation,” the mayor said. “I don’t need a letter from the Trump administration to tell me what my priorities are.”

Pritzker also responded to the FTA letter at a press conference.

“This is the federal government threatening state and local government with taking away federal funds for a purpose that they’re not allowed to,” he ‌said. “We want the safest possible and most modern transit system in the entire country, and that’s what we’re prepared to implement.”

Illinois passed public transit reform that includes increased funding for public safety programs, including combating violent crime on public transit, his office said.

A CTA spokesperson said in a statement that the agency is reviewing the FTA request and will “respond within the requested timeline.” Its operations rely heavily on federal funding, particularly for capital improvement projects.

The Trump administration in October announced it was withholding $2.1 billion for Chicago infrastructure projects, including expansion plans for the Red Line L commuter train. The project would have established stops in some of the city’s poorest neighborhoods. White House budget officials said at the time that they wanted to ensure funding wasn’t moving through race-based contracting.

Cracker Barrel shares are lower in premarket trading after posting softer-than-expected quarterly sales and cutting full-year revenue and profit guidance. Customer traffic dropped more than anticipated, driven in part by backlash after the casual dining chain effectively “Bud Lighted” itself with a disastrous woke rebranding.

The rebranding … 

… which was eventually reversed and the marketing ‘expert’ resigned, appears to have a lasting impact on sales. 

First-quarter results swung to an adjusted loss of 74 cents per share versus a profit a year ago, slightly better than the Bloomberg Consensus estimate. Revenue dipped 6% and missed forecasts, with comparable sales for both restaurants and retail declining more than expected.

Wall Street analysts were spooked by the 7.3% decline in customer traffic for the quarter. 

Snapshot: First quarter results (courtsey of Bloomberg): 

• Adjusted loss per share 74c vs. EPS 45c y/y, estimate loss/shr 79c

• Revenue $797.2 million, -5.7% y/y, estimate $801.1 million

• Restaurant comp sales -4.7% vs. +2.9% y/y, estimate -4.02%

• Retail comparable sales -8.5% vs. -1.6% y/y, estimate -6.5%

Ongoing traffic deterioration sharply reduced annual sales and profit guidance (courtsey of Bloomberg):

• Sees revenue $3.2 billion to $3.3 billion, saw $3.35 billion to $3.45 billion, estimate $3.38 billion (Bloomberg Consensus)

• Sees capital expenditure $110 million to $125 million, saw $135 million to $150 million

• Sees adjusted Ebitda $70 million to $110 million, saw $150 million to $190 million

In premarket trading, Cracker Barrel shares are down about 5.5%. As of Tuesday’s close, the stock has been cut in half since the August rebranding debut. 

Here’s what Wall Street analysts are saying (courtsey of Bloomberg);

Piper Sandler (neutral, PT to $27 from $49), Brian Mullan

• “Unfortunately, the struggles that kicked off in August have continued at CBRL, with traffic in the quarter down 7.3% (better in the beginning of August, and then worse after that),” Mullan writes

• Traffic for the fiscal 2Q-to-date period is running down 11%, and management “materially” reduced its annual guidance

• Cracker Barrel is sticking with many of the turn-around efforts designed to help over the long-term, but the main takeaway from the 3Q report/conference is that “things remain pretty tough at the business in the here and now”

Citi (sell PT to $20 vs. $24), Jon Tower

• “The traffic slump spurred by the ill-fated logo change resonated through F1Q results, and, along with a softer restaurant backdrop, prompted a weaker start to F2Q and a FY26 guidance cut,” Tower writes

• In the near-term, the company is “mixing in tactical sales drivers,” like buy-one-get-one and holiday promos, that may “prove costly” to the P&L, and weaving in longer-term initiatives to “sustainably drive the top line and preserve profits.”

• Believes the stock will remain under pressure until traffic/sales show “sustained improvement, as out-year numbers remain a question mark”

Truist (buy, PT to $45 from $50), Jake Bartlett

• “Sales trends have not begun to recover from the 8/19 re- branding fiasco, or any recovery has been offset by macro pressures,” Bartlett writes 

• Says Cracker Barrel is “taking the right steps” to boost traffic, with its focus on improved service and food quality

• This has been reflected in improving guest satisfaction scores and will eventually, he believes, be reflected in a traffic recovery

• Business investments, including adding value to the menu and retaining labor hours, are headwinds to FY26 margins, but should drive operating leverage in FY27

Cracker Barrel is a case study for every other casual dining chain: go woke, get crushed.

Authored by Tsvetana Paraskova via OilPrice.com,

The majority of India’s biggest refiners are buying Russian oil from non-sanctioned sellers and traders as widening discounts of Russia’s crudes to benchmarks are tempting the price-sensitive Indian importers, sources involved in the purchases told Bloomberg on Wednesday. 

Before the latest sanctions on Russian oil producers Rosneft and Lukoil, India bought from Russia around one-third of all the crude it imported, as it sought cheaper oil.

Amid tense trade negotiations with the United States, India earlier this year was singled out by U.S. President Donald Trump as the main financier of the Kremlin’s oil revenues.

At the time, India remained adamant that it would buy the cheapest oil available, regardless of whether it came from Russia or elsewhere.    

However, the U.S. sanctions on Rosneft and Lukoil upended all previous plans by Indian refiners, who hastened to withdraw from the spot market for Russian crude in December.

But Bharat Petroleum Corporation Limited (BPCL) and Indian Oil Corporation (IndianOil) have bought Russian crude from non-sanctioned companies for January delivery, at a discount of $6-$7 to Brent crude, reports emerged last week.

Combined, IndianOil and Bharat Petroleum have purchased in recent days 10 cargoes of non-sanctioned Russian crude, including Urals, according to Bloomberg’s sources.

Another state-owned Indian refiner, Hindustan Petroleum Corporation Limited (HPCL), is seeking non-sanctioned Russian oil for January delivery, the sources said. 

Private refiner Reliance Industries, the owner of the world’s biggest integrated refining complex at Jamnagar, is a notable absence among Indian refiners in the market for non-sanctioned Russian crude, according to Bloomberg. 

Reliance, which operates the 1.4 million barrels per day (bpd) Jamnagar complex, has a long-term deal with Rosneft to buy almost 500,000 bpd.

Reliance was India’s single biggest buyer of Russian crude, until now, but it halted all purchases of oil from Russia last month, after the sanctions on Rosneft and Lukoil. 

Russia has rejected a new Zelensky proposal for an “energy ceasefire.” Kremlin spokesman Dmitry Peskov has explained that Russia wants a “long-term peace” and not a just a temporary ceasefire. Zelensky has offered a mutual halt to strikes on energy infrastructure if Russia agreed, mirroring something which had only briefly been in effect at the start of this year.

This ‘offer’ comes at a moment that Ukraine is suffering perhaps its worst energy crisis of the war, with lengthy blackouts not just being experienced in the country’s east and south – but long outages in and around the capital as well.

Oleksandr Kharchenko, director of the Ukrainian Energy Research Center, has in recent comments confirmed that resources for repairing damaged energy facilities have almost run out. 

“Now I don’t see the resources from either Ukrenergo, the generating or distribution companies to purchase the equipment they already need and will need in two or three months,” he said in televised remarks.

“Ukraine may run out of equipment to restore its energy system if Russia continues to launch attacks,” he has explained.

The new proposal for a fresh energy ceasefire comes as Moscow is still livid at recent attacks on tankers transporting Russian oil. And now a cargo vessel carrying grain from Crimea has been detained at Odessa port:

Ukrainian security officials have detained a cargo vessel in the port of Odesa that authorities say is part of Russia’s so-called “shadow fleet,” the Security Service of Ukraine (SBU) said Wednesday.

The ship, whose name was not disclosed, arrived under the flag of an African country to load a shipment of steel pipes. The captain and 16 crew members holding passports from unspecified Middle Eastern countries were on board at the time of the seizure.

According to the SBU, the vessel illegally transported nearly 7,000 tons of Russian grain from annexed Crimea to North Africa in January 2021.

The SBU claims it found evidence of “illegal operations in ports on temporarily occupied Ukrainian territory” after a search of the ship.

Apparently Ukrainian authorities intend to seize the ship’s cargo altogether, and transfer them Ukraine’s Asset Recovery and Management Agency (ARMA), a government entity which deals with property linked to corruption or other crimes. So naturally, Moscow is not going to look kindly on fresh offers to mutually stop attacks on energy infrastructure.

Oil prices extended their recent decline this morning as concerns about global oversupply continued to weigh on sentiment.

Crude has been trapped in a tight $4-a-barrel range since the start of November, as oversupply concerns vie with geopolitical risks surrounding the flow of sanctioned Russian barrels into nations including India.

“I’m increasingly becoming a bit of a contrarian here, given the limited selling response to all the negative news,” said Ole Hansen, head of commodities strategy at Saxo Bank AS.

“The biggest risk to prices could be to the upside if next year’s oversupply is already priced in,” he added.

Overnight saw API report a large crude draw but sizable product builds…

API

• Crude -4.78mm (-1.7mm exp)

• Cushing

• Gasoline +3.14mm

• Distillates +2.88mm

DOE

• Crude -1.812mm

• Cushing +308k

• Gasoline +6.397mm – biggest build since Dec 2024

• Distillates +2.5mm

US crude stocks fell last week but products saw notable builds (4th straight week) as Cushing inventories hover near ‘tank bottoms’…

Source: Bloomberg

US Crude production picked up again to a new record high as rig counts remain near cycle lows…

Source: Bloomberg

Oil prices have stuck within a tight range in recent weeks as rising geopolitical risks amid Ukrainian attacks on Russian oil infrastructure and shipping counter rising global inventories of the fuel.

In its monthly Short-Term Energy Outlook released Tuesday, the EIA warned rising global production has outpaced demand and it expects inventories to continue rising by two-million barrels per day in 2026, pressuring prices.

By Michael Every of Rabobank

The RBA rates hold decision generated two notable headlines from the Australian Financial Review: ‘RBA is worried it cut interest rates too far’; and ‘RBA is caught in Ray Dalio’s Doom Loop’.

The Bank of England says Chancellor Reeves’ budget will lower inflation by 50bps in 2026, backing the view that they will give the public an Xmas rate cut next week. Of course, note that the Australian government used similar state spending deliberately targeted at certain sections of the CPI index to help persuade the RBA to cut three times… only for it to then worry it went too far and get caught in a ‘doom loop’.

The RBNZ ‘s new Governor Brennan stated rates are not on a preset course, implying that they could go either up or down. Who knew? Not those who think they can’t go back up, for one.

Today, sees the Bank of Canada, the Fed, and the BCB in Brazil – which in Asia means a day of fiddling. The BCB is seen on hold at 15%. So is the BoC at 2.25% (see here for more from our cross-asset strategists Molly Schwartz and Christian Lawrence). At the Fed, a 25bps cut to 3.75% is priced in (see here for the take from our US Strategist Philip Marey) – but so is disagreement on what next. As Reuters headlines it, ‘Investors warm up for long spell of discordant Fed’. That’s putting it mildly.

The Financial Times reports Trump and Treasury Secretary Bessent will start final interviews for the new Fed Chair this week, with a trio of names still in the ring alongside favorite Kevin Hassett. He just said he wouldn’t bow to pressure over cutting rates, but he agrees with Trump there’s “plenty of room” for cuts in the coming months. So, that’s one tricky interview question in his pocket. However, ‘Where do you see yourself in five years?’ might be harder given the FT claims Hassett could be appointed for a shorter than usual term, allowing “Bessent to move to the Fed later.” Moreover, at a campaign-style rally, Trump just stated “It could be” that all four Biden-era Fed appointments, including “too late” Powell, “may have been signed by the autopen”, so are “maybe” invalid, “but we’ll take two.”

The RBA fiddled. The BOE may fiddle. The RBNZ may fiddle. The BoC are taking a rest from fiddling. The Fed is still fiddling – and the Fed is being fiddled with. Yet Nero-liberal markets don’t fret about getting burned as the music deafens them to what’s going on.

Trump just gave Ukraine’s Zelenskyy “days” to respond to his peace proposal: he reportedly wants things wrapped up by Xmas having failed to do so for Thanksgiving. Ukraine is preparing to unveil its updated peace proposal to the US, and Zelenskyy also claims to be “ready for elections.”

Trump thrashed EU leaders, stating “I think they’re weak,” and their countries are “decaying” – the accompanying article states “The Most Influential Man in Europe Thinks Europe is Full of Losers.” Trump also denied pledging any Argentina-style bailout for Hungary’s embattled leader Orbán, even if he praised central and eastern Europe vs the west.

European leaders have, typically, responded weakly for fear of losing US support. Indeed, the US denied a German request to integrate American artillery rockets into its armed forces, which could make it more difficult for the German military to cooperate with the US and other NATO allies. For an overview of the geostrategic dilemma Europe is in, see ‘A Grand Strategy for Europe in the New Cold War’. For now, there is Romanesque rhetoric but Nero-style fiddling going on.

Against this backdrop, the FT also argues ‘Why the world should worry about stablecoins’, concluding that “Dollar-based digital currencies offer benefits for the US, but Britain and the EU are better off resisting them.” Really? How? Is that also fiddling as things get hotter?

The Politico interview also touched on the “Trump Corollary” to the US Monroe Doctrine, where he refused to rule out boots on the ground in Venezuela, or moves vs Colombia or Mexico. That’s as CNN reports the Trump admin is quietly building plans for what would happen if Maduro were ousted – as if this is in the passive rather than active sense.

In geoeconomics, Trump’s controversial decision to allow Nvidia to sell H200 AI chips to China is seen by Bloomberg as spurred by Huawei’s AI Gains; the Wall Street Journal states those chips will have to undergo an unusual US security review before being exported to China; and the FT claims China will (again) limit access to them anyway, as it aims for its domestic production. That’s what a push for strategic autonomy looks like – not lots of grand speeches about strategic autonomy.

The EU has announced stricter food import controls to reassure EU farmers and address French conditions for supporting the EU-Mercosur deal: will it therefore replace tariffs with non-tariff barriers? It’s also considering further tariffs on China. Meanwhile, EU Industry Commissioner Séjourné admitted: “Last month, I was supposed to go to Brazil to discuss a rare earth mine. Three days beforehand we were told that the Americans had come, put money on the table, and bought all production until 2030.” By contrast, China claims to have pulled off a critical mineral production tech revolution in 10 months, leaving it further ahead. And in the UK, a token vote in favor of rejoining the customs union with the EU passed Parliament.

The FT also reports July’s US-Indonesia trade deal is at risk of collapse, with D.C. believing that Jakarta is reneging on terms of agreement. Watch this space to see how the US reacts when a country doesn’t stick to a deal.

In political economy, France’s National Assembly narrowly approved a contentious 2026 social security budget. At the same time, the leading French (presumed) presidential candidate Bardella claims “Together, Nigel Farage and I will restore Europe’s borders” via a ‘patriotic alliance’ between the National Rally and Reform UK to reshape Europe. Not coincidentally, the UK’s PM Starmer, a former Human Rights lawyer, urged Europe’s leaders to curb (or can we say, ‘fiddle with’?) the European Court of Human Rights in order to halt the rise of the far right.

In key data, China’s CPI inflation was unchanged y-o-y at 0.7%, but PPI deflation deepened further to -2.2% from -2.1%. Of course, that shows some economic problems, even if the West would kill for 0.7% CPI. So do reports that major Chinese EV firms are losing money on every vehicle that they sell. But when the quid pro quo is global domination of supply chains now close the point of no return for other countries’ established industries such that no future recovery is then possible, it’s arguably still a tune worth squeezing out of all the instruments of economic statecraft… even if Neo-liberalism burns.

Against that kind of backdrop, the Fed meeting today is just one little note.

Chinese AI startup DeepSeek has been using ‘several thousand’ banned Nvidia Blackwell chips to develop its next major model, The Information reports, citing six people with knowledge of the matter. 

The chips in question were smuggled into China through a complex scheme that involves sending them to data centers in countries that are allowed to purchase them – then dismantling the servers and importing the components to China. 

Doing so allowed DeepSeek to remain competitive in the AI race, as Chinese AI chips are still not sufficient to train AI models – a process in which the models ‘learn’ from mountains of data. While Beijing has pushed for domestic companies to use homegrown alternatives, the Nvidia chips are currently the only ones that can get the job done.

Nvidia’s Blackwell, which shipped in the fourth quarter of 2024, have been used by companies including xAI, Google, Microsoft and OpenAI – which all use hundreds of thousands of B200 chips, along with the prior “hopper” generation H100 / H200 models – to train and operate. 

DeepSeek made headlines in January, when its R1 deep-reasoning model displayed high performance vs. what the company claimed was very minimal cost to train it. Since then, the startup has only made incremental upgrades to their model – which uses a method called ‘sparse attention’ in which only certain parts of the model are used to answer questions vs. the entire model, according to the report. This technique could significantly reduce the costs of ‘inference’ (when AI models send your power bills higher to create cat videos) – which lowers the overall cost to adopt AI. 

Blackwell chips are perfect for this approach, as they include specialized hardware designed to silo various processes and accelerate sparse computing, which can run such calculations nearly twice as fast as traditional methods. 

DeepSeek’s focus on the sparse attention technique has made its model development more challenging and time-consuming, according to the person. The company in September released the V3.2-Exp, which it described as an experimental model serving as “an intermediate step” toward its next-generation model. But applying sparse attention to bigger models is proving to be more complicated, the person said.

Some DeepSeek employees are hoping to roll out the next-generation model by the Lunar New Year holiday in mid-February, according to the person. However, DeepSeek founder Liang Wenfeng, who prioritizes performance over the timeline, hasn’t set a hard deadline for the new model, the person said. –The Information

DeepSeek originally trained its models with older Nvidia A100 chips which launched in 2020 – 10,000 of which were stockpiled by its hedge fund parent, High-Flyer Capital Management before US export restrictions kicked in in 2022. The A100 is two generations older than Blackwell. DeepSeek also used Hopper chips, the generation just before Blackwell, according to company research papers from 2024. 

When Blackwell was unveiled, Nvidia released a design that combines 72 chips in connected server racks weighing 3,000 pounds (1.5 tons) each when fully assembled – taller than the average household refrigerator. While this has been the go-to option for US companies, it’s impossible for smugglers to move it around in suitcases. Instead, they smuggle Blackwell hardware into China in eight-chip servers that are much lighter (about the size of a large suitcase), which are easier to install and repair. 

On Monday, President Trump announced that he would allow the sale of Hopper (H200) chips to China, while Beijing is still deliberating over whether to permit companies to use them. Doing so could reduce demand for smuggled Blackwell chips. 

As The Information notes, DeepSeek’s models are custom-tailored to work with Nvidia hardware and software, making the use of Chinese chips less than ideal. After US export controls kicked in, DeepSeek followed Beijing’s policy priorities and began using Huawei Technologies’ chips instead to train smaller models – while continuing to rely on Nvidia processors for larger and more powerful models. 

In April, the House Select Committee on the Chinese Communist Party called DeepSeek a “profound threat” to US national security – and accused the company of circumventing export controls and potentially stealing intellectual property from US companies. In February, legislation was introduced to prohibit DeepSeek’s chatbot app on federal devices. 

(Is the ‘profound threat’ that the US government can’t control what DeepSeek tells people?)

How They’re Smuggled

In this instance: 

First, chip dealers usually line up non-Chinese data center companies, typically in Southeast Asia, to procure Nvidia chips through authorized sellers. After the chips and accompanying servers are installed in those data centers outside China, Nvidia or its distributors, such as Dell Technologies and Super Micro Computer, dispatch personnel to inspect the equipment on location and make sure it complies with technical standards and export regulations, the people said.

Once the inspection is completed, dealers dismantle the servers and ship them into China. After passing Chinese customs, usually under a false declaration, the chips and servers are installed in data centers that already have leasing agreements with Chinese AI companies, the people added.

The elaborate scheme means the chips can only be ordered and delivered in batches, but it also ensures no paperwork can be traced to the end user.

Last month we noted a WSJ investigation which detailed a different method that keeps the chips physically out of China, but under Chinese control:  

1. Nvidia sells chips to a U.S. partner partly owned by a Chinese firm: Nvidia supplies advanced AI chips to Aivres, a Silicon Valley server builder whose parent company is one-third owned by Inspur—a Chinese tech firm placed on a U.S. national-security blacklist in 2023. While Nvidia is barred from dealing with Inspur or its blacklisted subsidiaries, the restrictions don’t extend to U.S.-based entities like Aivres, allowing the business relationship to continue.

2. Aivres finds an overseas buyer for high-end Nvidia servers: In mid-2024, Aivres negotiated a $100 million deal to sell 32 Nvidia GB200 server racks – containing roughly 2,300 Blackwell-generation chips – to Indosat Ooredoo Hutchison’s cloud-computing division in Indonesia. Indosat is jointly owned by Qatar’s Ooredoo and Hong Kong’s CK Hutchison.

3. The Indonesian buyer lines up a Chinese AI startup as the end user: Indosat agreed to purchase the servers only after securing a major client facilitated by Aivres: Shanghai-based AI startup INF Tech. Negotiations also included representatives from Fudan University, where INF’s founder, Qi Yuan, directs an AI institute.

4. The Chinese startup intends to use the chips for finance and medical AI: By October, the servers had arrived in Indonesia and were being set up. INF plans to use the computing power to train AI models for financial analytics and scientific research, including drug-discovery applications.

According to attorneys familiar with export-control rules, as long as the Chinese company isn’t directly using the chips to help China with military intelligence or weapons of mass destruction, the arrangement doesn’t violate any laws set by the Trump administration. 

Nvidia has responded to The Information, telling the outlet in a written statement: “We haven’t seen any substantiation or received tips of ‘phantom data centers’ constructed to deceive us and our [server manufacturing] partners, then deconstructed, smuggled and reconstructed somewhere else. While such smuggling seems farfetched, we pursue any tip we receive.“

Meanwhile, the company has developed a software feature to track the location of its chips – which could help the company combat chip smuggling, Reuters reported Wednesday. If this feature becomes live, it could ‘severely cripple’ the use of smuggled chips in China.