In the US, new members have been added to the Fed’s interest rate-setting committee, while renewed inflation concerns are further complicating policymaking. The Fed lowered its policy rate by 25 basis points earlier this month and has only projected two rate cuts for 2025. Chairman Jerome Powell said the bank is now entering a slower rate-cutting period and that future steps will depend on whether inflation slows. “This is a strong message that clearly says a cut is unlikely in January. What happens next will depend entirely on the data,” said Goldman Sachs Chief Economist Jan Hatzius. The FOMC is the group that votes on changes in interest rates. This group consists of the Fed’s seven governors, the New York Fed president and the presidents of 11 regional Fed banks. Regional presidents rotate each year and gain voting rights. Four new names are joining the FOMC this year. The candidates are said to be more cautious about rate cuts and are reluctant to rush into cutting. This complicates the situation. There are likely to be divisions among FOMC members. The big question is how quickly the Fed should cut interest rates. With inflation still above its 2% target, decisions should be made more cautiously.
Investors have poured record amounts of money into global bond funds in 2024. Expectations that major central banks will implement looser monetary policy have increased interest in bonds. According to data provided by EPFR, more than $600 billion has flowed into bond funds this year. This year’s inflows are higher than the previous record of about $500 billion in 2021. Investors see the slowdown in inflation as a turning point for global fixed-income assets. Slowing growth and inflation are driving investors into bonds. Risk-averse investors have turned to fixed-income products because stocks, especially in the U.S., have become increasingly expensive, according to James Athey, a bond portfolio manager at Marlborough. “While US stocks have been sucking money out of the market, investors have started to return to traditionally safer options as interest rates have normalized,” Athey said. He noted that inflation has fallen almost everywhere, while growth has weakened.
Hot days are being experienced on the natural gas front. After Russian President Vladimir Putin announced that a deal to continue the flow of natural gas to Europe via Ukraine is unlikely to happen by the end of the year, we saw an increase in European natural gas prices. According to the Dutch TTF (Title Transfer Facility) measure, European natural gas prices increased by 2.30% to 46.78 euros per megawatt-hour. Qatar also reacted to Europe during the week. Qatar threatened to stop exporting liquefied natural gas (LNG) to Europe due to new regulations set by the European Union (EU) on carbon emissions, human rights and labor standards. Qatar, one of the world’s largest LNG exporters, has long-term LNG agreements with countries such as Germany, France, Italy and the Netherlands. According to the Financial Times, based on data from Gas Infrastructure Europe, the volume in gas storage facilities in the European Union (EU) decreased by approximately 19 percent from September to mid-December. This was recorded as the fastest decrease since the energy crisis in the last three years. Although the storage facilities are above the 10-year average with a 75 percent occupancy rate, they were seen at 90 percent last year. The European energy market continues to be sensitive to news flows.
2025 seems to be an active year for the defense industry. President-elect Trump will continue to pressure NATO allies to increase defense spending in his new presidency. According to the Financial Times (FT), Trump's advisors stated in their meetings with senior European officials this month that the US will demand NATO allies more than double the current 2 percent spending target to 5 percent. Only 23 of NATO's 32 members currently meet the 2 percent target.
The aviation industry is experiencing record year-end activity. The congestion is particularly noticeable in Europe and the US. Airlines in the UK are aiming to offer 6.1 million seats between December 20 and January 2. This means a capacity of 5% more than the previous record in 2019. In the US, airlines plan to carry a total of 54 million passengers between December 19 and January 6. Trade group Airlines for America (A4A) stated that 140,000 additional seats were offered every day during the holiday season this year. In the US, United Airlines announced that it expects a 12% increase in passenger numbers. The company predicts that it will carry 9.9 million passengers during the holiday period. Friday, December 27 and Saturday, December 28 will be the busiest days. The increased travel demand following the pandemic represents the end of a busy year for airlines. Airline executives say that consumers are prioritizing holiday travel.
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