Traders Eye 2026 Fed Outlook; Trump Insists Smart People Back Tariffs

0:01Bloomberg Audio Studios Podcast Radio News. Good morning, I'm Nathan Hager. And I'm Karen Moscow. Here are the stories we're following today. Well, Karen, global bond yields have risen to highs last seen in 2009 ahead of the Federal Reserve's final policy meeting of the year. There is concern interest rate cutting cycles may be ending soon, but as for today, traders are all about certain a rate cut is on the way. As Bloomberg's Michael McKee reports, though, that is not the only thing investors will be focused on. The markets have priced in a quarter-point cut, and the Fed doesn't like to disappoint.

0:41But the real questions revolve around dissents, the dot plot, and their 2026 outlook. We may have three policymakers vote against the decision for the first time since 2019. Investors are also focused on what comes next. In September, Fed officials saw just one rate cut for next year. At the moment, the markets are pricing in three. How many they see now will depend on their forecast for unemployment and inflation in 2026. They forecast improvement in both back in September. But have the risks changed? Michael McKee, Bloomberg Radio. OK, Mike, thank you for full coverage of the Fed decision and remarks from Chairman Jay Powell.

1:20Tune in to a special edition of Bloomberg Surveillance, The Fed Decides. It kicks off this afternoon at 1.30 Wall Street time on Bloomberg Radio, Bloomberg Television, and the Bloomberg Podcast channel on YouTube. Well, ahead of the Fed's last policy decision of the year, Nathan, President Trump once again took aim at Federal Reserve Chairman Jay Powell. The president spoke at a rally in Pennsylvania. We're checking this. You know, we have a bad head of the Fed. Bad. We're going to be making a change, fortunately, this guy's out. And President Trump says he has a, quote, pretty good idea on who he wants to run the Fed.

1:55The president says he may wait until early next year to publicly reveal the name. Well, Karen, the economy was front and center at the president's rally. He was out to address voters' concerns about the high cost of living, telling the Mount Pocono crowd people are starting to see the benefits of tariffs. It's amazing. The smart people understand it. Other people are starting to learn, but the smart people really understand it. The president says tariffs have allowed him to provide aid to farmers and have forced manufacturers to build plants and data centers in the U.S. And he says he inherited high prices from the Biden administration.

2:28They say affordability and everyone says, oh, that must mean Trump has high prices. No, our prices are coming down tremendously. And at one point during the rally, President Trump suggested he could try to remove some Fed governors if former President Biden signed their commissions with an auto pen. President Trump has criticized Biden's use of automatic signatures before. Presidents have used them since at least the 1940s. Let's stick with politics here, Nathan. and history has been made in Miami. Eileen Higgins won the city's mayoral runoff. She becomes the first woman ever and the first Democrat in nearly three decades to lead Miami.

3:06Higgins beat a Republican endorsed by President Trump. Higgins' victory adds to a recent stretch of Democratic gains, including last month's wins in New Jersey and Virginia and Zoran Mamdani's victory as New York mayor. In the nation's capital, Karen, Senate Republicans are set to vote on a plan this week to counter Democrats' push to extend expiring Affordable Care Act subsidies. We get more from Bloomberg's Amy Morris in Washington. Senate Majority Leader John Thune promised Democrats a vote to extend Obamacare premium tax credits in exchange for reopening the government last month. But Republicans don't want to vote against the extension without an alternative plan.

3:44This proposal would offer people in some Affordable Care Act health plans up to$1 ,500 in health savings accounts, but it also includes restrictions that could ruin Democratic support. Neither the Republican nor Democratic plans are expected to get the 60 votes needed for Senate passage, and health care costs for more than 20 million people are set to spike January 1st. In Washington, Amy Morris, Bloomberg Radio. All right, Amy, thank you. Now we want to get the latest on the war in Ukraine. President Trump is saying Russia is in a stronger military position In the war, he took aim at European leaders for what he sees as excessive dialogue that's produced few results.

4:23And here's part of Donald Trump's exchange with Politico's Dasha Burns. They're not doing a good job, Europe. It's not doing a good job in many ways. They're not doing a good job. I want to ask you about that. They talk too much. And they're not producing. We're talking about Ukraine. They talk, but they don't produce. And the war just keeps going on and on. Almost four years since Putin's full-scale invasion of Ukraine, the war has come at a huge cost for both sides. More than one and a half million troops killed or wounded, according to Western estimates. Well, now we want to turn, Karen, to a Bloomberg News exclusive.

4:59A trove of emails reviewed by Bloomberg reveals Jeffrey Epstein's financial ties on and off Wall Street were broader than previously known. Let's get the details from Bloomberg's John Tucker. Good morning, John. And Nathan, a cache of more than 18 ,000 emails sent to and from Epstein's private Yahoo account shows that even after stories of Epstein's teenage victims spilled into the open, Wall Street continued to stay in touch. Some helped keep his money machine turning. He had access to prestigious names in global finance, including legendary Renaissance Technologies and the investment firm of billionaire Carl Icahn.

5:37Just weeks after Epstein was charged with soliciting prostitution, For example, he received a coveted invitation from wealth manager Greg Hirsch to invest with Renaissance. Epstein jumped at the chance. Hirsch, who now runs his own office, said through a spokesperson his interactions were solely professional and ended in 2007. Epstein even fielded requests for investments until his last week of freedom. In New York, I'm John Tucker, Bloomberg Radio. All right, John, thank you. Well, there are some companies in the news this morning. Paramount, Skydance and Netflix, the entertainment heavyweights locking in a bidding war for Warner Brothers Discovery, are bracing for a battle that could last months.

6:17Warner Brothers board is not planning to cancel its merger agreement with Netflix, which would require a$2.8 billion termination fee. Analysts say that now puts the onus on Paramount to make the next move. Meanwhile, money manager Mario Gabelli says it's, quote, highly likely he will tender his clients' Warner Brothers shares to Paramount in an effort to spark a bidding war for the film. and TV company. We're watching shares of JPMorgan Chase this morning, Karen. They're up about a tenth percent, but that followed a drop yesterday of 4.7 percent after the bank's Marianne Lake said JPMorgan anticipates spending$105 billion next year.

6:52That outlook was more than analysts were looking for. And SpaceX, Nathan, is moving ahead with plans for an initial public offering that would seek to raise significantly more than$30 billion. Sources say the Elon Musk-led company is targeting a valuation of about$1.5 trillion for SpaceX. And Bloomberg Tech host Ed Ludlow has more. They do need capital. Elon Musk has posted a lot recently about their cash flow position, why they don't need cash. But what I understand from sources is the reason they're targeting a raise of more than$30 billion, significantly more than$30 billion, is that alongside all of SpaceX's other long-term goals, with Starship in particular, they are looking at the market potential of space or constellation-based data center, satellites that act in constellation and aggregate as data centers, where SpaceX needs the capital to buy the semiconductors, buy the chips.

7:50Bloomberg's Ed Ludlow says SpaceX is pursuing a listing as soon as mid to late 2026.

7:59Time now for a look at some of the other stories making news in New York and around the world. And for that, we're joined by Bloomberg's Michael Barr. Michael, good morning. Good morning, Karen. Accused UnitedHealthcare CEO killer Luigi Mangione was back in a Manhattan court Tuesday for pre-trial hearings on evidence taken when he was arrested in an Altoona, Pennsylvania fast food restaurant last year. The court saw body camera video of his arrest from a year ago. Mangione's attorneys claim that police searched him illegally and are fighting to get key evidence seized from him thrown out. New York City Mayor-elect Zoran Mamdani met with real estate leaders and members of the partnership for New York City to tackle the city's issue of housing the homeless.

8:43Mamdani says they discussed how to remove roadblocks that make building new units difficult and secure more federal aid for development. The question, however, is whether we will be satisfied by just shuttling those New Yorkers to another equally cold place in our city or whether we want to connect them to housing. One New York subway rider says many homeless end up on trains. Get these people in the proper facilities, not the subway. It's dangerous. They could have accidents. They could fall on the tracks. Tents on the subway with traffic, rush hour traffic. How is that going to work? Mayor Alec Mamdani sparked some controversy after his comments last week saying that he would stop the NYPD from cracking down on homeless encampments.

9:22A suspect is in custody after a shooting at Kentucky State University in Frankfort. Police say Jacob Lee Bard of Evansville, Indiana is not a student. Authorities say Bard allegedly shot two students near a residence hall. Scott Tracy is the assistant chief of the Frankfort Police Department. They were quickly transported to a local hospital for treatment by Frankfurt Fire and EMS. Tragically, one has passed away from injuries. The other remains in critical condition. Assistant Chief Tracy did not release a motive except to say it stemmed from a personal dispute. Global News 24 hours a day and whenever you want it with Bloomberg News Now.

10:05I'm Michael Barr and this is Bloomberg Heron. Thanks, Michael. Time now for our Bloomberg Sports Update. And for that, we bring in John Stashauer. Thanks, Karen. Orlando and the Knicks are advancing to the semifinals of the NBA Cup. The Magic beat the Heat 117-108. The Knicks won in Toronto 117-101. Jalen Brunson scored 35. He had 20 in the first quarter. Two big news items for the baseball winter meetings. Kyle Schwarber is staying with the Phillies. A five-year deal for$150 million. He hit 56 home runs last season. And closer Edwin Diaz leaving the Mets to sign with the world champion Dodgers.

10:3844-year-old Phillip Rivers coming out of retirement to sign with the Colts. That's your Bloomberg Sports Update. Stay with us. More from Bloomberg Daybreak coming up after this. As markets move and headlines break, what matters most is context. A Bloomberg subscription gives you unmatched reporting, sharp analysis, and powerful tools that help you connect the dots. Visit Bloomberg.com slash podcast offer to learn more. Coast to coast on Bloomberg Radio, nationwide on Sirius XM, and around the world on Bloomberg.com and the Bloomberg Business App. This is Bloomberg Daybreak. Good morning. I'm Nathan Hager on the morning before the final Federal Reserve rate decision of 2025.

11:25The last time we heard from Fed Chair Jay Powell at the October meeting, he was already talking about December. A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it. Fast forward to today. Markets do seem to think a cut is a foregone conclusion. The question now is, what next? Joining us for more on this, Bloomberg Markets reporter Valerie Teitel. That really is the question, isn't it, Valerie? So many diverging views on what the Fed should be doing into 2026. Good morning. Yeah, good morning, Nathan. And just how will Powell do, how will he succeed on managing a consensus along this fractured committee?

12:07It is an unusually divided Fed that we have at the moment. We have Stephen Myron on one side clamoring for a faster pace of rate cuts likely to dissent for a larger jumbo 50 basis point rate reduction today. And then on the more hawkish side, we've had many regional Fed presidents, five in total, who have voiced some unease about a cutting rates here in December. So we could be up for a many of dissents if we get more than four. Nathan, that's something we've really not seen in modern Fed history. But Powell has done a very good job as his tenure of Fed chair at managing a consensus. But today he'll really be put to the test on that.

12:47To add to all of this, there is still the division that has been exacerbated by the lack of fresh economic data. The market and the Fed is still waiting for November CPI, November nonfarm payrolls. Really the last big set of data that they have is all the way back in September before the government shutdown. So just how will he manage a consensus around the fact that we are still in a data fog that is unlikely to clear for another two weeks? So then what kind of message can we expect from Chairman Powell when it comes to signaling what the path for policy could be into next year, given that kind of fog?

13:22So I think the market is expecting him to sound a little bit hawkish on next year. And the way he could possibly do that in a very subtle way, Nathan, is by saying that, look, the last two Fed cuts were a risk management exercise. And now that risk management exercise is coming to an end and we should slow down our pace of rate cuts. He very much framed the last two cuts in that way. It was a risk management exercise to protect the labor market aside from inflation being above target at that time. Perhaps he will say that, you know, the risks to labor market and the risk to inflation are more balanced at this decision and we need to slow down and wait for further clarity on the data.

14:01That could be kind of a hawkish hint to the market. But note, Nathan, the market is already really, they've already really priced in a more hawkish Fed today. If we look at how the money markets are pricing in rate cuts for 2026, we've pared it back by quite a lot in the month of December. We're only pricing in 50 basis points of rate reductions in 2026. At the beginning of December, that number was closer to 80 basis points. We have seen a decent pareback in what traders think the Fed will do next year. This is Bloomberg Daybreak, your morning podcast on the stories making news from Wall Street to Washington and beyond.

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15:18I'm Karen Moscow. And I'm Nathan Hager. Join us again tomorrow morning for all the news you need to start your day right here on Bloomberg Daybreak.