 Economics and Financial Markets Analyst - What can we make of the FED decision on rates this month ...
Executive Summary: The "Strategic Pause" Amidst Political Crosswinds The FOMC’s January 2026 decision to maintain the federal funds rate at 3.50% – 3.75% marks a definitive shift from the "insurance cuts" of late 2025 to a high-vigilance "wait-and-see" posture. While the statement acknowledges a "solid" economic expansion and a stabilizing labor market, the internal rift is widening. A 10-2 vote—featuring rare dissents from Governors Waller and Miran—reveals a Committee split between those prioritizing the inflation fight and those fearing a delayed reaction to labor market cooling. 1. The Policy Pivot: From Easing to Evaluation ... After 75 basis points of cuts in Q4 2025, the Fed has hit the brakes. The January statement upgraded the economic assessment from "modest" to "solid," signaling that the US consumer and business investment remain resilient despite previous tightening. Rate Range: 3.50% to 3.75% (Unchanged). The "Neutral" Target: Chair Powell signaled that the Fed believes it is now within the "range of plausible estimates of neutral." This suggests that further cuts are no longer a foregone conclusion but will require clear evidence of disinflation or labor distress. Inflation Sticky-ness: The statement kept the phrase "somewhat elevated," a nod to PCE prices hovering near 2.9% - 3.0%, exacerbated by recent tariff pass-through in the goods sector. 2. The Great Divide: A Non-Consensus Vote ... The most striking element of the meeting was the dual dissent, signalling a breakdown in the Fed’s usual "united front" strategy: Governor Christopher Waller: His dissent in favor of a 25bp cut is seen by analysts as a strategic positioning. As a leading candidate to succeed Powell in May 2026, Waller is signaling a more pro-growth, "dovish" lean that aligns closer to the administration's preference. Governor Stephen Miran: A Trump appointee, Miran has consistently pushed for more aggressive easing, arguing that the neutral rate is lower than the Committee currently believes. Strategic Divergence: This 10-2 split highlights a growing concern that keeping rates at 3.5%+ while job gains remain "low" risks an accidental hard landing, even as headline growth looks “solid." 3. Market Impressions & Macro Risks ... The market reaction was a "hawkish hold." Treasury yields edged higher as the "Dot Plot" and Powell’s rhetoric suggested fewer cuts in 2026 than the 2-3 previously priced in by the OIS curve. Labor Market "Stabilisation": The Fed noted the unemployment rate (sitting at 4.4%) is no longer "edging up" but "stabilising." This removes the immediate pressure to cut for employment support. The "Shadow" Mandate: The elephant in the room remains the political environment. With Chair Powell facing a DOJ investigation and President Trump openly criticising "incompetent" policy, the Fed is desperately trying to assert its independence. Powell’s attendance at the Supreme Court for Governor Lisa Cook’s case underscores the legal and constitutional siege currently surrounding the institution. Digital & Disruptive Tailwinds: Powell alluded to productivity boosts (likely AI-driven) and fiscal stimulus as factors keeping growth robust, which ironically provides the Fed "higher-for-longer" cover. 4. Outlook: The "May Cliff" The Fed is now in a holding pattern until at least June. With Powell’s term ending in May, the "lame duck" period has officially begun. Markets should expect heightened volatility as the battle for the next Fed Chair intensifies, potentially shifting the FOMC from a data-dependent body to one increasingly sensitive to the incoming administration's fiscal expansion plans.
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 Gold Blasts Through $5,000 Handle With Care Gold has indeed blasted through the 5,100 dollars per ounce level for the first time, with the move driven by a mix of safe‑haven demand, dollar weakness, and geopolitical/fiscal stress.
Where prices are now Spot gold has traded in the 5,000–5,100 dollars range, with intraday highs around 5,110 dollars per ounce. On the day in question, indicative trading ranges of roughly 5,011–5,055 dollars are consistent with a 2–2.5 percent daily move. Over the past month, gold is up about 17.7 percent, and roughly 86 percent year‑on‑year, confirming the magnitudes you cite. Drivers of the move Geopolitical tension: Escalating conflicts and policy unpredictability (including aggressive tariff threats and broader “Trump‑era” policy volatility) have boosted demand for traditional safe havens. Dollar weakness: The dollar index has fallen to multi‑month lows, partly on expectations around the Federal Reserve and a stronger yen, making dollar‑priced gold cheaper for non‑US buyers. Central‑bank buying: Official sector demand, notably persistent Chinese reserve accumulation, has underpinned the market. ETF and retail flows: Strong inflows into gold‑backed funds and aggressive retail participation have amplified the move. Monetary backdrop: Looser US policy expectations and concerns about real returns on financial assets support a higher equilibrium gold price. Context and implications The current level around 5,100 dollars is an all‑time high for gold in nominal terms. Silver and other precious metals have also broken records (silver above 100 dollars per ounce), indicating a broad precious‑metals safe‑haven and momentum trade rather than an isolated gold move. Several banks and analysts now project upside scenarios towards 6,000 dollars per ounce in 2026, while warning of the likelihood of sharp interim corrections given how far and fast prices have run. One way to frame it (economics lens) You can read this as a classic crisis‑confidence barometer: an 86 percent year‑on‑year rise in gold, coinciding with a weaker reserve currency, aggressive tariffs, and geopolitical risk, signals a market increasingly willing to pay a substantial insurance premium against tail events in currencies and financial assets. Handle With Care The Saturday Economist AI and Perplexity AI  A New York Times/Siena poll released Thursday found 69 percent of registered voters 18-29 disapproved of Trump’s handling of the presidency, while just 26 percent approved. A notable 54 percent said they “strongly” disapprove of his handling.
A CNN poll released this month found 69 percent of U.S. adults 18-34 disapproved of the way Trump is handling his job as president, compared to just 30 percent who approved. And a YouGov poll conducted this month found 62 percent of registered voters under 30 disapprove of Trump’s handling of the presidency, compared to 36 percent who approve. That’s a net negative of roughly 26 percent. But what’s remarkable about this poll is that Trump had a net positive of 7.6 percent in January 2025, a stunning 34 percentage-point drop in a year. In talking with young voters and polling experts, a few possible reasons for the move away from Trump emerged. One, we were told, young voters expect to see results quickly. Two, they do not have the sort of party loyalty their elders do. Three, in some cases, they see his policies as being more extreme than they expected. Together, these factors may be creating a situation where young voters are jumping ship. Rachel Janfaza, an independent journalist who tracks young people’s political habits, said young voters in 2024 felt that life was unaffordable and took a chance at backing Trump despite possibly disagreeing with him on other issues. “But now they’re like, this isn’t what I signed up for,” Janfaza said. “Our generation is driven by issues, not partisan loyalty, and also really moves at the speed of digital culture and online culture,” added Janfaza, who is 28. “That’s part of why the sort of vibes shift so quickly is because that’s the speed at which the internet moves.” Jo Rogan Said “You don’t want militarised people in the streets just roaming around, snatching up people — many of which turn out to be U.S. citizens that just don’t have their papers on them,” Rogan said this month on his podcast. “Are we really going to be the Gestapo, ‘Where’s your papers?’ Is that what we’ve come to?” “Young men didn’t back Trump in ’24 because they loved chaos; they backed him for strength, stability and some control over their lives,” said Della Volpe, who is the director of polling at the Harvard Kennedy School’s Institute of Politics. “In our spring focus groups, many seemed willing to give him some time, but that goodwill is dissipating fast — especially when daily life feels so expensive, and Trump’s attention has turned elsewhere.” Washington Post 23 January 2026  It has been 12 months since President Donald Trump’s second inauguration on January 20, 2025, and to say it’s been an eventful year would be a massive understatement. We’ve seen the DOGE-led gutting of federal government agencies, a whirlwind of tariff announcements, a rigorous and seemingly indiscriminate immigration crackdown and the longest-ever government shutdown in history.
We’ve seen the U.S. pull out of dozens of international organizations and treaties, question long-standing alliances and fully embrace a new “America First” approach to foreign policy. In the past three weeks alone, the U.S. captured Venezuela’s President Nicolás Maduro, took control of the country and is now trying to strongarm Denmark and other European allies into giving up Greenland. And while Trump and his supporters would read this as a progress report, as a list of all the things the president got done, his political opponents shudder at the thought of how much more damage will be done over the next three years if America is already barely recognizable after one year of Trump 2.0. The American public, while not as vocal in their criticism of the administration as many observers would hope, is not particularly happy with Trump’s first year back in office. According to RealClearPolitics, Trump’s average approval across 13 national polls currently stands at 42.5 percent, which is close to the lowest it’s been since his return to the White House. Meanwhile an average of 55.1 percent disapprove of the president’s job performance, with Trump’s net approval, i.e. the difference between the share of people approving and disapproving of the job he’s doing, negative across all polls. Looking ahead at the midterms in the fall, Trump’s low popularity doesn’t bode well for the Republican Party. With some experts expecting a Republican “wipeout” that could result in the Democrats taking control of the Senate, Trump has, some say jokingly, suggested that there shouldn’t even be an election given how well he’s doing. It wasn’t the first time that the president mused about not wanting elections. When Ukrainian President Volodymyr Zelensky mentioned that his country doesn’t allow to hold elections during periods of martial law, Trump joked that if the U.S. was in a war in 2028, that would good for him. Given the events of January 6, 2021, it is perhaps understandable that many people don’t think this matter should be joked about. Felix Richter Statista https://www.statista.com/chart/34379/us-respondents-who-approve-disapprove-of-us-president-donald-trumps-job-performance/  U.S. Leadership Approval Slips Among NATO Allies
Anna Fleck, Statista Jan 21, 2026 World leaders have descended on Davos, Switzerland this week to discuss global economic and geopolitical challenges, from Ukraine to artificial intelligence. Top of the agenda, however, is Greenland, following the much-anticipated arrival of U.S. President Donald Trump today amid heightened tensions between Washington and Europe. In an address to European and NATO leaders, Trump said the United States is “seeking immediate negotiations” to acquire Greenland, adding that he “won’t use force”. Against this backdrop, new Gallup data illustrates how perceptions of U.S. leadership have shifted over the past year. Approval of Washington across 31 NATO allies fell 14 percentage points between 2024 and 2025, to just 21 percent, marking the lowest level since 2020, when it fell to 18 percent during U.S. President Donald Trump’s first term in office. The steepest declines were recorded in Germany (-39 percentage points) and Portugal (-38 percentage points), with approval falling by at least 10 percentage points in 18 cases overall. Turkey saw the highest increase in approval, posting a 12-point increase. The data was collected between March and October 2025, prior to recent developments such as the military action in Venezuela and the latest escalation over Greenland. Perceptions of China meanwhile have warmed somewhat. Approval of Beijing among NATO allies rose 8 percentage points to 22 percent in 2025, roughly matching U.S. levels. Gains were particularly pronounced in Turkey (+21 p.p.), Spain (+15 p.p.) and Greece (+14 p.p.). While the polling is from last year, more positive sentiment appears to have carried into 2026, at least in the case of Canada, as expressed by Canadian Prime Minister Mark Carney, who announced plans last week to work more closely with Beijing on trade in an effort to reduce dependence on the United States. Approval of Russia remained low at 10 percent, while the EU was viewed most favorably, with a 60 percent approval rating. https://www.statista.com/chart/35721/change-in-approval-of-us-and-chinese-leadership-among-nato-countries/ |
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