Hello there,
Some of you will be packing the thermals and crampons for Davos next week. Watch out for an even heavier security presence than usual: President Donald Trump is appearing in person and he’s bringing the biggest ever U.S. delegation with him, including the secretaries of the Treasury, Commerce, and Energy, and the U.S. Trade Representative.
The theme of this year’s gathering is “A Spirit of Dialogue”, which may be hard to pull off given Trump’s designs on Greenland, his renewed shade towards Ukrainian President Volodymyr Zelenskiy and his administration’s decision to open a criminal investigation into Fed Chair Jerome Powell.
But there will still be plenty to talk about and deals to be done. U.S. companies such as McKinsey, Microsoft and Ripple are paying to sponsor a Davos venue - housed in a small church - that will serve as a base for U.S. government officials.
While Trump is in Switzerland, the Supreme Court will hear oral arguments over his efforts to fire Fed Governor Lisa Cook. That case has been overshadowed by the administration’s latest move against Powell, which took the fight over Fed independence to a whole new level.
But if the administration’s goal is further rate cuts, the unprecedented action may well backfire on them. It could motivate Powell to stay on as Fed governor once his term as chair ends in May and it complicates the process of confirming his successor. Some Republicans on the Senate Banking Committee, which must confirm a new prospective chair, have said they will block Trump’s Fed nominees after the indictment threat. On top of all that, casting doubt on Fed independence puts upward pressure on longer-term yields, which directly influence mortgage rates.
Trump is hellbent on getting housing costs down ahead of the midterms, but as Reuters columnist Mike Dolan points out, a plan to get federal housing agencies on a $200 billion buying spree of mortgage bonds looks unlikely to pull mortgage rates down further by itself. Federal Housing Finance Agency Director Bill Pulte says Trump will be announcing more initiatives on housing during his trip to Davos. Let’s see what he comes up with.
Away from the political noise, the economic numbers aren’t supporting a Fed rate cut anytime soon. In fact, J.P. Morgan predicts the Fed’s next move will be a rate hike in 2027, while Barclays and Goldman Sachs joined Morgan Stanley in postponing rate cut calls to mid-2026 as data suggests that the labor market is not rapidly deteriorating.
And finally, a new year, and another deal involving OpenAI is announced. This time, the ChatGPT maker has signed a $10 billion computing deal with Nvidia challenger Cerebras. I get into Big Tech and its AI obsession in this week’s episode of Reuters Econ World podcast with Tim Wu, an antitrust legal scholar. Listen here.
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