GM. This is Milk Road Macro, the newsletter that keeps your macro brain fed and your portfolio one step ahead.
Here’s what we got for you today:
- ✍️ Everything you need to know about this week’s Fed meeting
- 🎙️ The Milk Road Macro Show: Grant Williams: The Global Monetary Order Is Breaking Down
- 🍪 Tesla just revealed a robot that can run hinting at a robotics breakthrough
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Prices as of 8:00 AM ET.
EVERYTHING YOU NEED TO KNOW ABOUT THIS WEEK’S FED MEETING
Welcome back to another exciting Fed week.
Once again, it’s the most important Fed week of your life (until the next one).
Time is rapidly running out for Fed Chair Jerome Powell - who will be replaced in May 2026.
But for now, he’s still in the seat and in control.
We’re likely to see a 25bps interest rate cut at this week’s FOMC meeting on Wednesday.
And we might also get some details about an imminent expansion of the Fed’s balance sheet - for the first time in more than three years.
So, what’s the latest on all the key economic data points?
How likely is a rate cut this week?
What does it mean for risk asset markets?
And what will we learn about the balance sheet?
Let’s take a look…
So, what’s the latest on all the key economic data points?
For this week’s meeting, the Fed is somewhat “flying blind”.
Due to the U.S. Government shutdown that took place between October and November, we’ve seen a big lag on a lot of important economic data releases.
In particular, the most recent labor market and inflation data that Fed members will have seen is from September.
Still, here’s the latest data we have for the most important metrics.
CPI remains well above the Fed’s “official 2% target”.
It sits at 3% year-on-year - and it has been rising since May.
This will be a cause for concern for some Fed members in terms of cutting rates - with CPI remaining above target for 4.5 years now.
Meanwhile, non-farm payrolls (job growth) had slowed over the summer months.
But it picked up again in September - printing +119k, well above consensus expectations.
More up-to-date private measures of job growth don’t look so good.
The ADP report printed -32k for November.
The headline unemployment rate (the official jobless rate, measuring people without jobs who are actively looking for work) ticked up from 4.3% to 4.4% in September.
Initial Jobless Claims (the number of people claiming unemployment benefits for the first time) remain incredibly low.
It’s hovering around multi-decade lows and has been falling in recent weeks.
Overall, there’s no sharp deterioration in jobs/employment data - but the labor market is sluggish and has been for some time.
Some Fed members may want to cut rates to attempt to assist the labor market.
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EVERYTHING YOU NEED TO KNOW ABOUT THIS WEEK’S FED MEETING (P2)
Rate cut at this week’s meeting?
A rate cut is likely at this meeting.
But it’s not a sure thing.
Interest rate traders are pricing an 87% chance that we see a 25bps rate cut this week, at the time of writing.
But one thing is for sure: this is not a unified Federal Reserve.
In fact, this is probably the most divided Fed we’ve seen for decades.
Several of the 12-member FOMC voting board has made it known in recent weeks that they are concerned about inflation and they might not think a cut is the right decision this week.
For many years, dissents (a voting member making it known they explicitly disagree with the interest rate decision) were almost unheard of at the Fed.
It was previously renowned as a very united central bank.
But this week, we could easily see three or more dissents.
What does this mean for risk asset markets?
We’re in a similar situation to the previous Fed meeting in October.
A rate cut is widely expected - so the rate cut itself, if it comes, will likely have minimal impact on risk asset markets like stocks and bitcoin.
What will be much more important is what Fed Chair Jerome Powell has to say in his press conference about the outlook further ahead - and how his views match up to current expectations.
Right now, the market is extremely uncertain about what will happen in 2026.
Despite the likely arrival of a “super dovish” Powell replacement - Kevin Hassett - in May, current expectations are for just two 25bps rate cuts throughout 2026, according to interest rate markets.
And the market is very undecided about when those expected rate cuts might occur.
This week, I think it’s unlikely Powell will open the door explicitly to more cuts in the near-term (“dovish cut”) - particularly considering the Fed is currently so divided.
A “neutral cut” or a “hawkish cut” are probably the most likely scenarios, in my opinion.
I think Powell will probably continue to reiterate that the Fed is “data-dependent”.
This may end up being slightly negative for risk asset markets overall, in terms of any initial reaction to the press conference.
But looking at a wider view, the Fed is likely to cut rates with the stock market near to all-time-highs, as was the case in September and October this year.
Historically, this is often a bullish medium-term signal.
If we don’t get a cut this week (unlikely, but possible), I’d expect risk asset markets to throw a big tantrum.
They’ve been trading in almost perfect lockstep with December rate cut odds recently.
So, if the expected cut doesn’t come, we’ll likely see some meaningful downside.
And what about “balance sheet expansion”?
The Fed has officially halted its Quantitative Tightening regime (balance sheet reduction), as of December 1.
And now it’s likely that expansion of the Fed’s balance sheet will begin again soon - potentially as early as Q1 2026.
A number of analysts from top investment banks are predicting that this change will be announced at the meeting this week.
If an announcement is made, it’s likely the Fed will confirm it will start buying relatively small amounts of Treasury bills again.
With the balance sheet growing incredibly slowly over time - maybe by as little as $20bn per month.
This won’t strictly be "Quantitative Easing” - and will not have anywhere near the same impact on risk asset markets as previous rounds of balance sheet expansion (I outlined this here).
But it will be generally “liquidity positive” on the margin, and so it’s not a bad thing for risk assets.
And it will also likely be a small bearish factor for the dollar relative to other currencies (DXY) over time.
Wrapping up
We’re likely to see a 25bps rate cut this week - but this is already widely expected.
So the expected rate cut, if it comes, won’t be overly important.
Instead, investors will be keenly watching Powell’s press conference, looking for clues as to what will happen at future Fed meetings.
And we may also get confirmation of the start of balance sheet expansion in the coming months.
As always, I’ll be watching every word and sneeze from Powell - so you don’t have to.
And we’ll review what happened on Thursday.
But for now, that’s it for this edition - catch you in the next one.
THE MONETARY ORDER IS SHIFTING 🚨
In today’s episode, we sat down with Grant Williams to talk about the unraveling of the global monetary system and what it means for investors.
Here’s what you’ll hear:
- Why the real Fed signal comes from Powell’s press conference, not the rate cut
- How QE could return sooner than you think and what it says about economic health
- The ripple effects of sanctioning Russia’s reserves and why global trust in the dollar is breaking
- Why central banks are buying gold by the ton and how Grant frames gold vs crypto
Don’t sleep on this one 👇
YouTube | Spotify | Apple Podcasts
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BITE-SIZED COOKIES FOR THE ROAD 🍪
Optimus just jumped from toddler steps to a legit 6 MPH sprint, proving Tesla’s robot is ready for real work. Its rapid progress, Tesla’s full-stack advantage, and a brewing U.S. robotics push signal a coming trillion-dollar Physical AI race with China. If Tesla can mass-produce Optimus, it could own the market.
President Donald Trump announced that he would greenlight the sale of Nvidia’s most powerful H200 chips to China. Nvidia shares pushed higher after the announcement.
The fight for the future of Hollywood just got nastier. Paramount launched a hostile takeover bid for Warner Bros, just days after the company agreed to a deal with Netflix.
U.S. consumers expect inflation to remain elevated, according to the New York Fed’s consumer survey. Respondents said they expected inflation to average 3% over the next five years, but were more optimistic about the labor market.
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