Christmas: A lump of coal from the Fed

For financial markets hoping for an extended season of monetary goodwill, the Federal Reserve’s December policy package felt distinctly like a lump of coal in the stocking. By accompanying its interest rate cut with an aggressive upward revision to future policy projections, the central bank signaled that the era of painless easing has ended.

The Grinch at the Eccles Building

The committee’s caution is well-founded: with equity multiples near record highs, credit spreads at historical tights, and universal import tariffs looming, further easing would pour kerosene on speculative animal spirits. By anchoring the terminal policy rate near four per cent, the Fed has warned investors that borrowing costs will remain restrictive for years to come. The holiday rally must stand on its own earnings feet.

The Federal Reserve’s hawkish holiday guidance served notice to Wall Street that central bankers will not subsidize asset valuations in an era of structural fiscal expansion and protectionist risk.