Notes on the Week Ahead

Amidst a torrent of unsettling international and domestic events, the week ahead could be very consequential for the Federal Reserve. The FOMC will hold its first meeting of the year on Tuesday and Wednesday.  While they will likely leave interest rates on hold, any dissents on that decision and their commentary on the economic outlook will provide clues to the direction of short-term interest rates in 2026 and beyond. In addition, this week the President is expected to announce his nominee for Fed Chair, the person who, presuming they are confirmed by the Senate, will lead the Fed over at least the next four years. 

Americans don’t like fruit cake.

This issue comes up every December when Sari, having stolen the job from me, sets about making the family Christmas cake. It is a divine confection - currants, sultanas, cherries, candied peel and almonds, liberally presoaked in whiskey and then folded in with flour, eggs, butter and spices and baked for hours at a low temperature. The scent in the kitchen is intoxicating but temporary as the cake, when cooled, is encased first in almond icing and then in royal icing. It weighs in at a hefty eight pounds and tastes magnificent when I can no longer restrain myself on Christmas Eve or Christmas Morning.

Forecasting the economy right now feels a bit like trying to carve a path through thick jungle undergrowth on a foggy day. There are multiple layers of confusion and a forecast has to address these issues first before tracing out a possible path forward.

The Red River of the North starts at the confluence of the Bois de Sioux and Otter Tail rivers and forms most of the border between Minnesota and North Dakota. It then crosses into Manitoba and empties into Lake Winnipeg before its waters finally flow into the sea at Hudson Bay. Cities have grown up along its banks including Fargo, Grand Forks and Winnipeg and their residents are all too aware of one unfortunate feature of the river. Unlike most large U.S. rivers, it flows from south to north.

On Wednesday, the Fed will hold its last FOMC meeting of the year. Their actions and communications could move interest rates across the yield curve and so are important for investors.

When I first arrived in America, America seemed to be all about cars.

It was the early 1980s, and I had come over from Ireland to do a Ph.D. in economics at Michigan State University. The campus was strewn with the hand-me-down vehicles of the student body – great gas-guzzling behemoths rendered hopelessly uncompetitive by the soaring gas prices of the 1970s and fighting a losing battle against Japanese imports. Still, the domestic auto industry was crucial to the U.S. and particularly Michigan, and rising sales numbers, released every 10-days, were monitored as the hopeful early shoots of recovery from the brutal double-barreled recessions of 1980 and 1981-82.

I was watching a football game over the weekend and I saw a giant lineman go down. He was in obvious pain and hobbled, assisted and very slowly, to the sideline. The TV commentators, to my amazement, said he didn’t look too bad and he was probably healthy enough to return to the field in a snap or two. But to look at this man, battered, bruised and probably many times concussed, his frame swollen by a cardiac nightmare of a diet, his veins pumped up with sugar, caffeine and who knows what else, you’d have to ask “in what world could anyone truly call him healthy?”

In our age of overwhelming technological progress, I still cling to the simpler practices of my youth. I read books rather than tablets, write with an ink pen in cursive rather than text with my thumbs, and attempt to use mental arithmetic, rather than a calculator, in solving math problems. I also greatly prefer an analog watch to a digital one.

I was rewatching Apollo 13 over the weekend - a fabulous movie, by the way, if you’ve never seen it - about how, in 1970, three astronauts returned safely to Earth following an explosion on their spacecraft, two days into a journey to the Moon.

Among the many problems faced by the crew and mission control was one of navigation. In order to conserve electrical power, they had to shut down their computers, along with their navigation systems, until they powered them up again just before reentry. Of course, this made it far more difficult to plot their course – but it was also far more important that they do so – so that they would be in the right position when they approached the Earth.

This quarter, we dropped the oil page from our Guide to the Markets.

There are always exactly 65 pages in the Guide, so when we want to add a page, we have to get rid of one. The process is, unfortunately, democratic, so when my younger colleagues wanted to add pages illustrating U.S. equity market concentration (page 10), the AI capital spending boom (page 22) and dollar weakness and international equity outperformance (page 43), I had to surrender the oil page.

But I did so with all the foreboding of well-grizzled experience.