Fed Watch – 12/5/2025

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hi, I’m Lauren Saidel-Baker and thank you so much for joining me for this December 5th edition of Fed Watch. Busy week this week, starting with on December 1st, the Fed ended quantitative tightening. So that was essentially the practice of shrinking their balance sheet by letting bonds mature without replacing them.

We did an episode on this a few weeks back. So if you want more detail about what that means for policy going forward, please go back and watch that prior episode. But more interestingly, we do have the next Fed meeting coming up next week.

At this point, the market overwhelmingly expects a 25 basis point cut. I think that is the most likely outcome based on some of the limited data that has been coming in. A quick reminder, we did not get our jobs report today.

The November jobs report was actually released until December 16th, so that will come in after the feds meeting next week. And also, we won’t get October numbers. Simply put, the federal government shutdown happened.

That data was not collected in real time. And officials say they won’t go back and recollect it or estimate it. What we do have to work with is ADP payrolls. Those came out earlier this week. Not great numbers there.

So at the margin, that does move us more toward a cut than away from it. Again, I will warn you that some of these private sector numbers, especially on the labor side, they can be very good indicators, but usually that’s a few months later.

Once we get revised or finalized numbers, they’re not always the best predictor, not always exactly in line with the government sources when they first come out with those initial releases. So that takes us to another major drop in the world of data that happened, I believe it was last week.

The Federal Reserve Board came out with their annual data revisions. There were some doozies in there. Generally, as we look at information here at ITR Economics, we are always looking for different data sources.

So if there is one major revision coming from one set of data, we want to look more broadly to corroborate, right, what were the trends we’d been seeing? What does this data mean? And what does it align with or where might we see some risk factors?

So please do expect more information coming from ITR and from your ITR economist about whether or not your sector was one of these that was a little bit more affected. Overall, we still see generally the same trajectory for the economy.

This is not cause for a massive revision to all of our expectations, but we did want to give you the warning that some of those historical data sets are going to look a little bit different, especially backward looking more than a few years ago.

But at the end of the day, that data is very interesting. It’s probably not going to change any Fed policy going forward. Where we are looking for a little bit more change, we got some rumblings out of Washington this week.

Trump came out and said he knows who he will pick for that Fed chair position. However, he’s not going to tell us quite yet. At this point, betting odds are on Kevin Hassett as the next likely Fed chair pick.

Very interesting character. He has both credibility with Trump and with the markets. So I don’t see this as being a highly contentious pick if in fact this is the individual who is chosen. At the margin, he does skew slightly more dovish than current Chair Powell.

However, we should have expected that. Anyone that Trump will be tapping in this position would probably be more on the dovish side of the table. And as a quick aside, Brian Beaulieu and I are hosting a webinar on Tuesday, December 9th at 2.30 Eastern Time, where we’re really going to delve in to many topics about the upcoming 2030s depression, the types of sectors that will outperform and underperform, but more relevant to this topic about how a business can be interest rate sensitive. So as we talk so much about Fed policy going forward, we’re going to not only look at the path of interest rates, but more importantly, how different interest rates are behaving in slightly different ways.

And if your business is interest rate sensitive, we’ll give you the tools to determine that, but to which interest rate might you be sensitive? There are going to be some critical breaking factors here that will affect different businesses in different ways through the remainder of this decade.

So we’ll have a quick video that you can watch about this upcoming webinar. The link is in the description below to reserve your seat. Also this week, Treasury Secretary Besant came out and said that Trump should be able to veto picks for regional Fed presidents.

This would be an interesting take and certainly would further threaten Fed independence. That could be a real risk factor. So as we break down what actually happened here, Besant essentially was using this mechanism.

He said that regional Fed presidents should have to live in their district for at least three years before they are taking office. And this seemed to be a slight dig at a lot of individuals who have historically been from or worked in New York, clearly a major market for talent of this type.

He seems to think that New York is overrepresented, right? That that type of thought process, that type of individual is being cherry-picked from New York and put into these other districts that they are not from, that they do not live.

And so how could they represent these districts? Now, at the end of the day, these are more academic exercises here. A quick reminder on the voting structure, who is actually voting for these interest rates.

Seven governors of those Trump nominees are now three of those four. There’s a court case going on with Lisa Cook, who could, in fact, if that does not go her way, be a fourth seat open for Trump to fill.

But in addition to those members, four of the remaining, excuse me, in addition to those seven governors, we always have the president of the New York Fed as a voting seat, and then four of the remaining 11 regional presidents.

So this is not a guarantee that if one of those seats is filled, that they will vote a certain way. It’s a rolling system as to who has a vote in any given year. But again, anything that we see that threatens this Fed independence, that could be taken very poorly by markets, that certainly could skew interest rates in a different direction.

Any politician, be they Republican or Democrat, they are naturally going to be incentivized to prioritize short-term growth, sometimes at the expense of long-term growth and stability. So this is not meant to be a political statement, just the fact that the Fed works because it is so independent.

We’ll be watching that meeting next week. So be back here with us on Fed Watch. We’ll be unpacking if in fact there was a rate cut, if there are any dissents, and all of the good information in the messaging.

We hope you join us then. Until then, this is ITR Economics Fed Watch.