by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with an analysis of the Federal Reserve’s latest rate action and the 2026 policy outlook. We then assess rising US-Venezuela tensions and their implications for US foreign policy. This is followed by other market moving events such as China’s strategic dilemma over US chip restrictions, investor skepticism toward Oracle’s AI buildout, and the US-China tax standoff that is delaying the global minimum tax framework. Finally, we include a roundup of essential domestic and international data releases.

Fed Decision: The Federal Reserve delivered a quarter-point reduction to its benchmark rate, setting the new target range at 3.50% to 3.75%. The decision was highly controversial, featuring the most contentious vote of Federal Reserve Chair Powell’s tenure with three dissents — a split not seen in six years. To address persistent strain in the repo market, the Fed concurrently announced the imminent resumption of Treasury Bill purchases. Despite these stimulative actions, the central bank clearly signaled a cautious and potentially restrained trajectory for future monetary easing.

• The Federal Reserve’s latest Summary of Economic Projections (SEP) indicates a more confident economic outlook since September. Officials materially upgraded their median forecast for 2026 GDP growth from 1.8% to 2.3% and modestly improved their inflation projection, lowering it from 2.6% to 2.4% for the year. This brighter picture for output and prices was not extended to the labor market, where the unchanged projection implies policymakers still anticipate tepid hiring in the coming year.
• Despite the official vote, significant internal divisions persist within the Federal Open Market Committee (FOMC). Although the rate decision garnered only three formal dissents, SEP revealed a much deeper disagreement. Five officials favored maintaining interest rates at their previous level, while three others projected that the federal funds rate should be higher than the current target range by the end of 2026.
• In his press conference remarks, Chair Powell framed the committee’s internal divisions as a reflection of differing estimates for the long-run neutral rate — the theoretical policy setting that neither spurs nor slows economic activity. He further elaborated that officials’ growth projections rely significantly on productivity gains, which could result in slower hiring. Speaking on inflation, Powell characterized the recent uptick as likely temporary, attributing it primarily to tariff impacts.
• Heading into 2026, the central debate will be whether the Federal Reserve opts to cut interest rates to below the neutral rate. This decision will largely depend on whether inflation continues to ease and if the labor market cools as expected over the coming year. If these conditions materialize, the Fed may have the necessary impetus to implement deeper rate cuts before the next chair assumes leadership.

US Foreign Policy Turns Hawkish: The United States’ seizure of an oil tanker en route to Cuba has heightened diplomatic tensions with Venezuela. Washington justified the action by declaring the vessel stateless, despite its last known registration being from Venezuela. This intervention directly impedes Caracas’s ability to export oil — its primary source of government funding — and raises the potential for a direct conflict within the region.

• This US action marks the latest in a series of escalations with Venezuela. The pattern began with US airstrikes on Venezuelan vessels suspected of drug trafficking. It escalated further with presidential threats of a land invasion, and most recently, with Caracas accusing Washington of sending fighter jets to intrude on its airspace.
• The recent escalation of rhetoric and actions against Venezuela may be viewed as a bid for regional supremacy. Regardless of whether the US intends to intervene directly, its current behavior — characterized by increased external pressure and military signaling — echoes the pattern of strategic aggression seen in Russia’s approach to Ukraine and China’s persistent actions regarding Taiwan.
• Due to the White House’s unwillingness to create volatility leading into the midterm elections, a direct military attack is not expected. Crucially, though, these actions are designed to normalize the view of the Western Hemisphere as a US sphere of influence. The successful establishment of this precedent will likely lead to a more permanent and greater level of US engagement and assertiveness throughout the region.

Immigration Crackdown: New measures from the Trump Administration aim to restrict migration by tightening enforcement in two key areas. First, the White House has mandated a strict English proficiency requirement for commercial truck drivers, allowing for their immediate removal from service. Second, it has proposed using social media screening to deport visa holders. Collectively, these actions may reduce the supply of labor as it will remove or deter foreign workers from seeking work in the US.

China Chip Dilemma: Chinese firms’ continued demand for high-end US chips is straining Beijing’s push for domestic alternatives, as no local product can match the capabilities of NVIDIA’s H200. Recent disclosures — such as DeepSeek’s use of banned chips and a government review of NVIDIA demand — highlight the gap. Regulators now face mounting pressure as they decide how to allocate export permits after President Trump’s limited sales approval. Chinese firms’ need for US made chips is a reminder of the White House’s leverage in talks.

Oracle Disappoints: The cloud computing company reported disappointing financial results on Thursday, missing sales and profit estimates while raising its capital expenditure plan. This lackluster performance has amplified existing market concerns, specifically, that the aggressive spending on AI infrastructure is outpacing the immediate returns and earnings growth. This growing disconnect between investment and realization will likely lead to greater investor scrutiny and a push for more realistic valuations across the technology sector.

Global Pushback: The White House’s aim to exempt US multinationals from the global minimum tax has met with resistance from OECD nations, led by China. The group was set to finalize this arrangement as part of the second pillar of the global tax regime. While the full plan was expected to be released this year, objections from Beijing, which is advocating for a similar exemption for its firms, have delayed its publication. This holdup has led to speculation that the US could revive the retaliatory tax measures that it contemplated earlier this year.

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