Hedgie's Market Edge - December 15, 2025

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🦔 Hi everyone, Hedgie here! The S&P 500 closed at 6,827, down 0.6% for the week but still up 16.1% year-to-date. The Nasdaq fell 1.6% as tech took a breather. This week brought the Fed's final meeting of 2025, more evidence of AI infrastructure cracks, and continued signs of consumer stress.

The Fed's Final Move

The Fed cut rates by a quarter-point to 3.5%-3.75% in a 9-3 vote Wednesday, marking the most dissents at a Fed meeting in years. Fed Governor Stephen Miran wanted a larger half-point cut, while Kansas City Fed President Jeff Schmid and Chicago Fed President Austan Goolsbee wanted no cut at all. That split shows deep disagreement about the path forward. The Fed's dot plot shows just two quarter-point cuts expected for 2026 and 2027, fewer than markets had priced in. The statement change about "extent and timing of additional adjustments" is Fed-speak for we're probably done cutting for now.

Goolsbee dissenting for the first time since joining in 2023 matters. He was dovish all last year calling for cuts, but inflation staying sticky changed his mind. When someone flips from dovish to hawkish, they're seeing something in the data that worries them. The Fed upgraded their growth forecast for 2026 from 1.8% to 2.3%, which is optimistic given everything else happening. They're banking on growth staying strong enough to handle fewer rate cuts. The problem is Treasury yields kept rising despite Fed cuts, which means the bond market doesn't agree with the Fed's assessment.

The Jobs Reality

Fed Chair Powell admitted federal jobs data could be overestimating job creation by up to 60,000 jobs per month. Official figures show 40,000 jobs added monthly since April, but the real number could be negative 20,000 per month. The problem involves the birth-death model, which estimates jobs when businesses open or close and has overstated job creation by hundreds of thousands annually. Powell said "the labor market is under pressure, where job creation may actually be negative."