What the Fed’s Third Rate Cut Means for 2026

0:00Avoiding your unfinished home projects because you're not sure where to start? Thumbtack knows homes, so you don't have to. Don't know the difference between matte paint finish and satin? Or what that clunking sound from your dryer is? With Thumbtack, you don't have to be a home pro. You just have to hire one. You can hire top-rated pros, see price estimates, and read reviews all on the app. Download today. Support for this show comes from Odoo. Running a business is hard enough. So why make it harder with a dozen different apps that don't talk to each other? Introducing Odoo. It's the only business software you'll ever need.

0:38It's an all-in-one, fully integrated platform that makes your work easier. CRM, accounting, inventory, e-commerce, and more. And the best part? Odoo replaces multiple expensive platforms for a fraction of the cost. That's why over thousands of businesses have made the switch. So why not you? Try Odoo for free at odoo.com. That's O-D-O-O dot com.

1:06Support for this show comes from Odoo. Running a business is hard enough, so why make it harder with a dozen different apps that don't talk to each other? Introducing Odoo. It's the only business software you'll ever need. It's an all-in-one, fully integrated platform that makes your work easier. CRM, accounting, inventory, e-commerce, and more. And the best part? Odoo replaces multiple expensive platforms for a fraction of the cost. That's why over thousands of businesses have made the switch. So why not you? Try Odoo for free at odoo.com. That's O-D-O-O dot com. Today's number, 18. That is how many hours koala bears spend asleep every single day.

1:54That makes koala bears the second sleepiest animal in the world, just behind Mitch McConnell.

2:03If money is evil, then that building is hell.

2:12Welcome to Prof G Markets. I'm Ehelsen. It is December 11th. Let's check in on yesterday's market vitals. The major indices rallied following a Federal Reserve meeting. More on that in a moment. Meanwhile, Treasury yields fell, the dollar slumped, and finally, the Oracle shares dropped more than 10 % in after-hours trading on lower-than-expected quarterly revenue. Okay, what else is happening? For the third time this year, the Federal Reserve cut interest rates by 25 basis points. However, a divide is growing on the Fed board. This decision marked the first meeting in six years where three Fed officials dissented.

2:52Two governors voted to hold rates steady, while Stephen Myron voted to cut by 50 basis points, not 25. As for the bar the head, the Fed's outlook calls for just one cut in 2026. The S &P and the Dow both hit session highs as Chair Powell gave his remarks. Okay, here to take us through what happened with this Fed decision, we are speaking with Mark Zandy, Chief Economist of Moody's Analytics. Mark, thank you for joining us again on Prof G Markets. Ed, so good to be with you. Thanks for the opportunity. Good to have you back. So this Fed decision here, we got another cut, third in a row, lowest level in three years.

3:37Let's just start with your initial reactions to what we saw today. Pretty much down the strike zone, as they would say, Ed, investors expected the Fed to cut a quarter percentage point, and that's exactly what they did. There was widespread expectation that there would be a lot of dissension in terms of the decision. We got that as well. One dissenter wanted a 50 basis point cut in rates. A couple other Fed members wanted to hold policy unchanged. That's unusual, but that was expected. Uh, and, uh, I think, uh, chair Powell in the, in the press presser afterwards, uh, after the release of this, of the, uh, announced move made it clear that, you know, while, uh, there might be another rate cut in our future next year, you know, it's becoming much more data dependence.

4:27It's hard to know exactly what the path forward is. And I think investors knew that that was coming. So all in all, I thought it was, as I said, right down the strike zone. The dissension that we saw, three dissenting votes, first time that's happened in six years, as you say, there were two officials who said, let's hold interest rates steady. And then there was one, and this is Trump's guy, Stephen Myron, who said, no, let's cut by 50 bips instead of 25. Is that important? I mean, what does that say about where we're at. Jerome Powell seemed to say that that wasn't really an issue or that didn't matter that much.

5:10What is your view? How important is it that we saw this level of dissension? Well, I think it's meaningful. I think it's explainable by the fact that the federal funds rate target, the interest rate the Fed controls, is now pretty close to what might be considered the so-called neutral rate, the equilibrium or R star, that rate at which policies neither They're supporting restraining growth. That's not written in stone somewhere that we can go take a look. It's estimated. Policymakers get to it by intuition and feel. So as a result, there's a lot of debate about that. We're pretty close. And because we're pretty close, it's not surprising you'd get people disagreeing about what their appropriate policy steps would be.

5:55The other thing that's going on, of course, is tariffs and highly restrictive immigration policy. And those policies, they weaken growth, which would argue for rate cuts, but they also raise inflation, which would argue for no rate cuts and maybe even increase all else being equal. So that is another factor behind the disagreements and thus the sense. And then I also think, you know, Fed independence is probably playing a role here. You know, the president, President Trump has made it quite clear he'd like input into the decision-making process of the Fed around interest rates. His recent appointee, Stephen Merritt, you mentioned that the former chair of the Council of Economic Advisors wants a 50 basis point cut, which goes to what the president wants.

6:40The president wants lower interest rates and much lower interest rates. And that's also playing a role, and thus it goes to the disagreements and dissent. So a lot of cross currents here. So it's very unusual you see these kinds of disagreements, but in the current context, I think it makes a lot of sense. Yeah, it sounds like politics is playing a larger role right now than it has in the past. The other issue was this lack of data. And we had Catherine Anne Edwards, an economist on the show recently, and she was not so sure that we would get a cut because her view was, you know, they're operating with a lot less data because of the shutdown.

7:20So the idea of changing policy maybe is not the right move. What exactly were they missing in terms of data and how did that affect or not affect the decision that they ended up making? Well, jobs data and data on inflation, and that goes right to their back to their dual mandate. They're chartered with ensuring full employment, everyone's employed, and maintaining low, stable inflation, close to the 2 % inflation target. And we were missing data related to both those mandates. In fact, next week, we're going to get the October, November payroll employment data, which is critical data for understanding what's going on the labor market.

8:07And the consumer price inflation data, we're not even going to get that for the month of October. We're only going to get that for November here in the not too distant future. So they were lacking a lot of data. But I do think the data we are seeing and getting, particularly on the labor market front, would suggest the economy is struggling. The job market is really going nowhere fast. Job creation has come to a standstill. Unemployment is still low, 4.4%, but it is moving higher and it's moving very quickly higher for certain groups, like young people, folks between the ages of 20, 24, their unemployment rate's now over 9%, up three percentage points in the last couple of years.

8:47Minority group unemployment rates are up a lot, the black unemployment rate. So we were getting other data related to the labor market, saying roughly the same thing, so-called war notices and layoff announcements. So I think there was enough information, despite the government shutdown and the disruption to typical data, for Fed officials to come to the conclusion that they still should be more focused on the mandate around jobs and full employment and the economy than around inflation. And that's how they acted, and I think that was appropriate. We're coming to the end of the year here. so this is probably the last time we see you in 2025 and then we'll be taking a break later do you have any thoughts on what 2026 is going to look like and does this decision tell us anything about what might happen here with the economy we're talking about the labor market issues which as you say they're getting appearing to get worse but then also inflation which i mean doesn't seem to be getting a whole lot better.

9:51But if we are entering a lower interest rate environment, maybe that means more spending, more earnings growth, expansion in the economy. What do you think we're going to see in 2026? Yeah, a lot of cross currents there. That's why there's so much confusion around the economy. It depends on what you're focused on, which part of the economic elephant you're touching. I mean, I think generally 2025, I'd characterize it as a a year of growth. I mean, we did not go into recession. We continued to grow, largely because of the boost created by AI, artificial intelligence, lots of different channels through which that's occurring.

10:30But it's a very fragile growth. You know, it's hard to get very enthusiastic about how things are going when you're not creating any jobs and unemployment's on the rise. And, you know, particularly for many Americans, it's a tough economic environment. I I mean, if you're in the top third of the income distribution, life is good, no problem. But if you're in the bottom two thirds, particularly the bottom third, it's a struggle. The inflation's up. Hiring is down. You don't want to lose your job. You're grappling with higher debt payments, cards, student loans. And you're really not benefiting from the rump in equity prices because you don't own any equity.

11:10So, you know, it really depends. And I think that will characterize 2026. And I do think there is a lot of risk when the economy is not creating jobs. That is not a place you want to be for very long. So hopefully, you know, we'll start to see hiring kick back into a higher year and job growth resumes and we continue to push forward. But, you know, I worry that that won't be the case and that, you know, it'll be a tougher year. The one other thing I'll just throw into the mix, Ed, that's different from 25, that we're different in 26 and 25, is we're going to get a lot of fiscal stimulus. You know, the old big, beautiful Bill Act kicks into high gear here in 2026.

11:54Tax cuts for businesses, accelerated depreciation and tax cuts for individuals, tips and overtime and salt and a bunch of other stuff. So that should provide some juice. And, of course, the Fed's been cutting rates and, you know, all else equal. That should also support growth in 26. So I think it's going to be another kind of just uncomfortable year for many Americans with a lot of risk around that. But hopefully with a little bit of luck and that fiscal stimulus, we kind of navigate through and avoid another year. We have another year without an economic downturn. Final question before we let you go here.

12:27We're going to have a new Fed chair in 26. Trump says he's found his guy, but he's not. He's being kind of coy about it. people think it's going to be Kevin Hassett. Either way, we're going to have a new Fed chair. The Fed is saying we'll have one rate cut in 2026. But if Trump shakes up the composition of who's actually in the Fed, can we really trust those projections? I mean, how will the new Fed chair actually change things in terms of policy? Yeah, you make a great point. I mean, I think it does raise the odds that we see more rate cuts than markets are currently seem to be anticipating next year.

13:07Okay. Yeah, I think, you know, because the independence of the Fed is under a lot of pressure already, and there's a lot of things, you know, going to happen here. And you mentioned Fed Chair Jay Powell rolling off next May. And the other thing is the court case, right? Lisa Cook, who's a Fed member, was fired by the president. I almost forgot. Right? So we'll have to see how that plays out. So, yeah, I think, you know, all else equal, you know, job market, inflation, everything the Fed looks at, financial conditions, inflation expectations. Now you've got to throw into the mix kind of the political independence of the Fed.

13:45And that would argue all else equal for lower rates. Okay. Mark Zandi, really appreciate your time. Thank you very much. I will see you next year, probably. Yeah, anytime, Ed. After the break, SpaceX is going public. If you're enjoying the show, give Profit Markets a follow.

14:31Thank you. big deal when every hire counts. With LinkedIn Jobs AI Assistant, you can skip confusing steps in recruiting jargon. It filters through applicants based on criteria you've set for your role and surfaces only the best matches so you're not stuck sorting through a mountain of resumes. LinkedIn Jobs AI Assistant can even suggest 25 great fit candidates daily so you can invite them to apply and keep things moving. Hire right the first time. Post your job for free at linkedin.com slash markets. Then promote it to use LinkedIn Jobs new AI Assistant, making it easier and faster to find top candidates.

15:05That's linkedin.com slash markets to post your job for free. Terms and conditions apply. Support for this show comes from Odoo. Running a business is hard enough. So why make it harder with a dozen different apps that don't talk to each other? Introducing Odoo. It's the only business software you'll ever need. It's an all-in-one, fully integrated platform that makes your work easier. CRM, accounting, inventory, e-commerce, and more. And the best part? Odoo replaces multiple expensive platforms for a fraction of the cost. That's why over thousands of businesses have made the switch. So why not you?

15:45Try Odoo for free at odoo.com. That's O-D-O-O dot com. The holidays mean more travel, more shopping, more time online, and more personal info in more places that could expose you more to identity theft. But LifeLock monitors millions of data points per second. If your identity is stolen, our U.S.-based restoration specialists will fix it, guaranteed, or your money back. Don't face drained accounts, fraudulent loans, or financial losses alone. Get more holiday fun and less holiday worry with LifeLock. Save up to 40 % your first year. Visit LifeLock.com slash podcast. Terms apply.

16:28We're back with Prof G Markets. The biggest IPO in history is on the horizon. Elon Musk's SpaceX is aiming to raise more than$30 billion next year at a$1.5 trillion valuation. That would eclipse Saudi Aramco's 2019 record raise, and it would make it the largest offering ever. The company hopes to list as soon as next summer, and SpaceX expects to use some of the proceeds to build data centers in space. Okay, here to discuss this IPO, we are speaking with someone who's been very bullish on space lately, and that is Scott Galloway. Let's give him a call.

17:10Scott, good to see you. Good to be seen, Ed. How are you? I'm doing well. Where are you? I am just outside the men's bathroom at the roof gardens at Kensington, which I'm pretty sure is a violation of every rule that the members are supposed. I have my camera out i'm loitering outside the men's room i'm pretty sure that this will be the last time i'm calling you from ruth gardens i love it you are live streaming to to a very large audience from inside the club but i do want to announce that i'm running for senate from minnesota you're not going to remember this guy but there was a senator from minnesota who was this homophobic motherfucker.

17:48And of course, he got caught trying to solicit blowjobs in the airport men's room at Minneapolis International Airport. And he claimed it was just his white stance. Anyways, I'm hovering outside of men's rooms. Let's talk about SpaceX, Ed. Let's talk about SpaceX. We want to talk to you because SpaceX was your big pick for 2026. It's your tech of the year. Now we've got the largest, most important space company in the world going public, the largest IPO in history, if it happens. Your reactions? So I think it's super exciting. I think this is an incredible company. There are a few products that I think have a greater delta between the offering and the rest of the competition than Starlink.

18:37I think it's just an incredible product. Also, I think SpaceX SpaceX is one of the best-selling companies in tech. Glenn Shotwell, what they've achieved there is just staggering. So I mean, I hate to say it because I don't know if you've ever sensed this, but I'm not a huge fan of Elon Musk. But I think SpaceX is an incredible company. And I think this could, I mean, as you said, our pick for 2026, the sector that will get the most cheap capital as it moves from Ego and Katy Perry and bullshit billionaires going into space and all these phallic things going, you know, just above the Kármán line and then floating back line.

19:16It's going to go to connectivity, which is what this is. And then ultimately, I think the real juice next year is going to be in space defense, which I don't think gets enough attention. But in sum, I'm pretty excited about it. Are you going to try to get into the IPO? No, I mean, they're talking about one and a half trillion dollars. Also, I sold my Tesla. I'm not, you know, I think it's an incredible product. I logged off of X. there's enough investment opportunities where I don't need to paint the fucking facts of a guy whose primary objective is to sponsor media companies and turn them into Nazi porn bars.

19:50That's not a company I'm going to invest in, but it is an incredible company. There's some things here. 90 % of space launch capability right now in terms of material shot into space is from one company, SpaceX. They're now the only company in the world that can put men or women into space. Two-thirds of low-Earth orbit satellites are from one company. And also, if you think of the greatest market capitalization or the greatest innovations in history in terms of shareholder value, it's been when a seminal technology declines massively in cost and processing power and bandwidth all kind of came down 80 or 90 percent over a 10-year period.

20:35And that's what SpaceX has been able to do in terms of kill it cost per kilogram to get into space they've brought it down i think 88 percent over the last 10 years the other kind of the business learning here i'm kind of curious to hear your take but one of the observations i had looking at the numbers spacex only did 13 billion last year and this year it's only gonna be 15 so its growth is not parabolic but it's one of the reasons that amazon's value is so enduring and that open ai might be netscape and that is digital companies can scale faster, but analog companies have much bigger modes. And that is to put in place distribution centers and 747s, which Amazon has done, is really difficult.

21:16And it's difficult to kind of assail, if you will. Whereas OpenAI is trading at about a half a trillion dollars, is growing much faster than SpaceX at a similar revenue multiple, but is much more vulnerable from open-weight LLMs and AI from China and from other competitors and Google and Alphabet. But the bottom line is, it's very difficult to build a startup. Two guys in a dorm room at MIT can't build a viable competitor to a space launch company. And that's what's so incredible about this company is it's going to have moats that are just very difficult to cross because it's going from 13 to 15 and they're talking about a valuation of triple of what OpenAI is now that is going from 13 to much more than that this year because the reality is OpenAI is very vulnerable.

22:08These digital companies scale up faster, but quite frankly, they're just more vulnerable. So it sounds like you're very bullish on the company. I'm pretty bullish on the company myself, but you don't want to invest because, I mean, let's say you were given the opportunity, someone, Elon Musk calls you, not Elon Musk, but someone else, someone calls you tomorrow, they say, here's allocation, pre-IPO. You don't want to do it, one, because you don't like Elon, and two, you mentioned the valuation there, one and a half trillion dollars. Why wouldn't you invest exactly? Well, one, I don't have many morals, but I do have a few.

22:47I just thought there's just too many opportunities to, again, paint the fence as someone who is divisive. And at 100 times revenues, you're talking about palantial evaluation. So I just, I mean, this is the problem with public markets, and you've talked about this a lot, is that most of the juice will have been squeezed. It'll probably get a pop out of the gates because everybody wants to own SpaceX. It's a great gift to give to little Rachel for her embodiment store or whatever. But you're probably talking, If it goes out at one and a half, it'll pop to two. And then it's trading at 150 times revenue.

23:24So I think it's an incredible company. I think it's exciting. I think it'll ignite a new space race. But no, I'm not in some, I'm not an investor at 100 times valuation. A guy whose primary export into Europe is not Rockets or Twitter. It's political division. and all this bullshit calling for the breakup of the EEO or showing up at nationalist rallies. I just think this concentration, you know, power corrupts and absolute power corrupts absolutely. And this guy's on the verge of absolute power. Fair enough. I will say you don't have many other options there. All from the men's room at the Kensington Roof Gardens.

24:05I just want to know what people's faces are like, the people who are around you. What are people saying as they walk into the bathroom right now? and hear you on a live podcast. Some dude just said Prop G, but I'm not sure it's like good form at my age to be filming men going into a men's room. I don't know if that's like good for their brand or mine. It's good for the brand. Give them a shout out. This is my first and last video from the Roof Gardens. I think we did one last year. God, I miss Chiltern, Ed. I miss Chiltern. This is rough. I know. I need someone to take me to Chez Margot in New York.

24:38Do you know anyone? maybe like a 30 under 30 total fucking douchebag. Oh, that's good. That's good. We'll do it. We'll do it when you're back. All right, brother. When you're back. Until then, enjoy the roof. Take care. Thank you, Scott.

24:58Mackenzie Scott just revealed details on her philanthropic work this year, including how much money she gave away. And the number is quite staggering. $7.2 billion. This year's annual total was announced with an update on her blog, which also tracks all of her contributions to date. And for those who don't know who Mackenzie Scott is, she is Jeff Bezos' ex-wife. She helped to start Amazon back in the 90s, and she now runs her non-profit, Yield Giving. And it was through this non-profit that these donations were made. So$7.2 billion in 2025. Let's just put that number in context. That is more than the entire budget of the World Health Organization.

25:41It is also more than it costs to build the Suez Canal, the Burj Khalifa, the Hoover Dam, and the Vegas Sphere combined. And that is on top of the$2.6 billion she gave the year before that, as well as the $2.1 billion the year before that. And so this brings her total philanthropic contributions to over$26 billion. So at this point, Mackenzie Scott has given away more than a third of her net worth. And after this year, she is now in the list of the top 10 most giving philanthropists of all time. As for where the money actually went, about half of her gifts to date have gone to educational causes, almost 90 % to causes in America.