The Fed cuts again… but this might be the last one for a while… a different Fed curveball from Monday… why has the 10-year Treasury yield been rising?…
Today, in a 9–3 vote, the Federal Reserve delivered a 25-basis-point rate cut at its December FOMC meeting – the first time in six years that three members have dissented.
The move lowers the fed funds target range to 3.50%–3.75%, another incremental step in the Fed’s ongoing effort to engineer a soft landing.
During his press conference, Federal Reserve Chairman Jerome Powell made it clear the move was not a green light for a full-blown easing cycle. Rather, the cuts so far this year have put the fed funds rate closer to “neutral,” so the Fed is now largely in “wait” mode going forward.
As Powell put it:
We’re well-positioned to wait and see how the economy evolves from here.
That patience also showed up in the updated Dot Plot.
Policymakers continue to project just one additional quarter-point cut in 2026, unchanged from September. Several officials even foresee no cuts – or a potential increase – next year, underscoring growing divisions within the committee.
Despite Powell’s nod toward a pause in rate cuts, his tone was somewhat upbeat in his press conference. He leaned into the soft-landing vibe, noting how the projections still show an economy growing above trend with inflation gradually moving lower. He also said he expects unemployment to top out at 4.5% then begin falling.
Zeroing in on inflation, Powell noted that without tariffs, inflation would likely already be running in the low-2% range. Because the tariff impact is expected to be a one-time upward adjustment, he anticipates inflation easing meaningfully in the second half of 2026.
As I write just after the closing bell, the market has cheered the decision.
All three major indexes finished higher, with the Dow Jones up 1.05%. The day’s standout performer, however, was the Russell 2000, which climbed roughly 1.3%, as small-cap stocks tend to be especially sensitive to rate cuts.
While the market wasn’t surprised by today’s Fed decision, the real Fed-related jolt actually came earlier this week
That’s when Kevin Hassett – the heavy favorite to replace Powell as Fed Chair – unexpectedly shook markets.
His comments on Monday diverged sharply from what investors had assumed about his policy stance.
Back in early October, Hassett made the shortlist of potential candidates to take the reins from Powell. Wall Street has viewed Hassett as a dove, selected by the Trump Administration to be a Fed chair who will cut first and ask questions later.
That speculation has helped keep bond yields suppressed – a tailwind for stocks.
Then, on Monday, Hassett flipped the script.
Let’s go to our hypergrowth expert, Luke Lango, from his Innovation Investor Daily Notes:
Hassett punctured that [cut first] narrative today, calling it “irresponsible” for the Fed to map out a six-month rate path, and arguing instead for real-time, data-dependent decision-making.
That doesn’t sound like “cut, cut, cut.” It sounds like “wait and see.”
Bond traders got the message instantly.
The 10-year Treasury yield spiked to a three-month high and, as of this morning, briefly broke out of a multi-month holding pattern.
Back to Luke:
Not great for risk assets in the short run…
This is now the market’s biggest risk.
Now, in the wake of today’s news and Powell’s press conference, the 10-year yield has pulled back – good news.
Still, we need to watch this.
Why the 10-year yield matters so much
To make sure we’re all on the same page, the 10-year Treasury yield is the most important number in the global economy and investment markets.
- It sets the tone for borrowing costs across the economy – mortgages, business loans, and credit markets.
- It determines the discount rate investors use to value future earnings (higher yields = lower valuations).
- It competes with stocks. When “risk-free” yields rise, some money rotates out of equities.
- And it influences sentiment. Rising long-term yields feel like tightening, even if the Fed is cutting at the short end.
In short, a higher 10-year Treasury yield can create plenty of headaches.
So, what’s the risk of that happening now?
Below, we look at a chart of the 10-year Treasury yield along with its 100-day moving average (MA) since the summer.
You’ll notice three things:
- The general trend has been “down” (good for stocks)
- But since September, the yield has been bottoming – carving out a base
- The yield has just broken out above its 100-day MA (in red), and it touched its September high this morning (before easing post-FOMC)
Now, this doesn’t mean that the sky is falling.
But if a new uptrend holds – with the 100-day MA and the September high serving as a fresh support level – it’ll be a headwind for the market.
“If the Fed has been cutting rates, why is the 10-year yield even rising?”
The Fed controls short-term interest rates, but the long end of the curve, including the 10-year yield, is set by the bond market.
So, when bond investors think the economy is running hotter than the Fed believes… or that inflation could linger… or that future deficits will mean more government borrowing… they push long-term yields higher, even during a rate-cutting cycle.
In moments like this, the market acts like a “bond vigilante,” asserting its own view of where rates should be.
This is why the 10-year can climb even as the Fed is easing – and why, to Luke’s point, this is the market’s biggest risk today.
Now, this isn’t the only explanation for why this key rate has been rising.
In fact, when asked about the climbing 10-year Treasury yield today, Fed Chair Powell said it could reflect “an expectation of higher growth.”
Elsewhere in his press conference, Powell attributed such higher growth to greater productivity thanks to AI – which dovetails into our next story…
A very different – positive/bullish – force pulling markets the other direction
While rising yields risk tugging the market in one direction, another force is quietly pulling in the opposite direction – and it’s far more optimistic.
I’m talking about AI.
On Monday, a major new study from OpenAI revealed something remarkable: the average worker is now saving 40 to 60 minutes a day thanks to AI tools.
From Bloomberg:
OpenAI’s survey of 9,000 workers across 100 companies [found that] three quarters of employees said that using AI at work has improved either the speed or quality of their output, the survey found.
If that sounds modest, Luke puts the numbers into perspective:
There are ~160mm workers in the U.S.
If all 160mm saved 1 hour per day thanks to AI, that would equate to 160mm hours saved per day. At 5 days a week, that is 800mm hours saved per week. At 52 weeks per year, that is 41.6B hours saved per year.
Average hourly earnings are about $40, so that is ~$1.6T in economic cost savings. That is ~6% of U.S. GDP.
It is also larger than California’s entire state economy. And is comparable to the full annual output of the U.S. manufacturing sector.
Now for the kicker…
That $1.6 trillion is just the value of raw hours saved. As Luke points out, that freed-up time doesn’t disappear – it gets reinvested into higher-value work.
Add even a modest multiplier, and suddenly you’re looking at $5 trillion in potential economic value.
Push the savings to two or three hours a day (which future AI tools should unlock easily over the next couple of years), and Luke estimates the ultimate productivity boost could top $10 trillion in the U.S. alone.
Here’s his bottom line:
AI will absolutely prove its worth and will create >$10T in economic value.
And the stocks driving that economic value creation will be big-time winners for the next 20-30 years, like the internet titans of the last 20-30 years.
If you’re wondering how to actually invest in this wave of AI-driven economic transformation…
That’s what Luke, along with legendary investor Louis Navellier and macro investing expert Eric Fry discussed on Monday.
Yes, AI is creating trillions of dollars in long-term value, but only a small group of companies will ultimately capture it. So, how do you find them?
Enter Luke, Louis, and Eric with this year’s Power Portfolio.
Each year, these three experts come together to build a concentrated, rigorously vetted model portfolio designed to outperform over the next 12 months. They call it the Power Portfolio – and its track record speaks for itself:
Two years ago, the Power Portfolio returned 35%. This year, during a period in which the S&P rose 14%, the Power Portfolio returned 32%.
But according to Louis, the biggest opportunities are still ahead:
There is a massive economic realignment beginning to take shape.
Trillions of dollars from corporations, foreign governments and Washington are already flowing into the United States to build AI data centers, energy systems, modern factories and the advanced supply chains our economy hasn’t had in decades.
Now, if you read the Digest regularly, you know this. But here’s where Louis and team are taking it one step farther:
The biggest winners of this shift won’t be the big household names…
They’ll be the small, overlooked U.S. companies sitting at the chokepoints of this $11.3 trillion capital wave.
These are the companies quietly enabling AI infrastructure…next-generation energy systems…automation…advanced manufacturing…and the rebuild of American supply chains.
Louis, Luke, and Eric spent months mapping where these capital flows converge. Their goal was to identify the handful of U.S. companies most likely to become the structural winners of this transition.
The result is Power Portfolio 2026 – a fully built portfolio designed for this AI realignment.
To get more details, click here to watch the free replay of their American Dream 2.0 Summit.
We’ll keep you updated on all these stories here in the Digest.
Have a good evening,
Jeff Remsburg
