by Louis Navellier
December 9, 2025
Financial markets are fully anticipating a Fed interest rate cut tomorrow, after Mary Daly, Stephen Miran, Christopher Waller and John Williams all spoke in favor of a December Fed rate cut, due mostly to labor market weakness. Adding to the evidence the labor market is under duress is ADP reported last week that private companies have lost an average of 13,500-jobs per week in the past few weeks.
In making their decision this week, the Fed’s Beige Book offers voting FOMC members further reasons for a coming cut, as recent economic activity in the 12-Federal districts showed little change over the past few weeks. Much of the Beige Book survey was conducted during the government shutdown and so may be misleading. But multiple Fed districts, including New York, Atlanta and Minneapolis, reported spending among upper-income consumers was resilient, while spending was flagging for low and middle-income households. This “K-shaped” spending divergence, where older (Boomer) spending is healthy, is a persistent characteristic this year. As the Minneapolis Fed report said, “Higher-income customers were unconstrained, but customers in the middle to lower end of the financial spectrum are tightening the belt.”
One other reason for the Fed to cut rates on Wednesday, December 10th, is real estate, since home and rental prices across the nation remain soft. In my opinion, there is more risk of deflation than inflation at the present time. Not only are real estate prices falling, but the U.S. is importing deflation from China and other global nations. The U.S. dollar is strengthening a bit, as many other counties sputter economically, cutting interest rates amid speculation of potential currency devaluations, as central banks attempt to step in to bail out some of these troubled countries with lower interest rates and/or quantitative easing.
In a possible sign that Kevin Hassett will be President Trump’s nominee as the next Fed Chair, Bloomberg reported that Treasury Secretary Scott Bessent may lead the Council of Economic Advisors (CEA), which is Hassett’s current post, giving Bessent two top roles in the Trump administration. President Trump will likely wait until January to announce a new Fed Chair, since it is a big deal and requires Congressional approval. The holidays are not the best time to make such an announcement but naming Kevin Hassett as Fed Chair should boost employment and economic growth, without posing any new inflation risks.
Wars (in Ukraine) May End Soon, While Rumors of War (in Venezuela) May Escalate
The Trump administration is still pursuing a Ukrainian/Russia peace agreement in 2025, as U.S. special envoys Steve Witkoff and Jared Kushner met with Russian President Vladmir Putin at the Kremlin on Tuesday for almost five hours of hammering out the details of a peace plan without input from European allies. In the event that Vladmir Putin agrees to a peace deal that should boost the stock market and cause energy prices to further soften on the prospect of more Russian natural gas and crude oil being available.
So far, the financial markets are largely ignoring potential war in Venezuela, as the U.S. Navy is poised off the coast of that nation and continues to sink boats that are allegedly transporting cocaine and other illegal drugs. The U.S. has closed Venezuelan airspace, and ground attacks on drug facilities may follow.
Venezuelan President Nicolas Maduro has reportedly talked with President Trump, which raises some speculation that he may seek asylum. Meanwhile, any escalation of U.S. actions in Venezuela is expected to be a boom for Venezuela’s domestic oil industry, which has fallen into disrepair, but it could boom again with closer help from U.S. energy companies. Longer-term, a resurging Venezuelan energy sector would likely cause crude oil prices to remain soft, due to all the new supply that could hit the world market.
Critics of President Trump’s actions, like Colombian President Gustavo Petro, have pointed out that the U.S. action against drug boats is about exploiting Venezuela’s vast crude oil reserves. Since the U.S. has also been attacking boats from Colombia, President Petro has been humiliated and is in danger of losing his Presidency. The bottom line is due to aggressive U.S. military actions; crude oil prices may decline if Venezuela’s domestic oil industry can be revived with the help of U.S. energy companies.
Interestingly, The Wall Street Journal reported Venezuela is sending massive amounts of cocaine to West Africa, where it is then largely sold in Europe by jihadist groups. Specifically, the WSJ said “Unprecedented levels of cocaine production in Colombia in recent years have overwhelmed traditional smuggling routes, leading traffickers to exploit Venezuela’s strategic location, ineffectual security institutions and long coastline, the law-enforcement officials have said. That has led cocaine consumption to rise worldwide in regions that hadn’t been major consumers, from Australia to Eastern Europe.”
U.S. Economic Statistics May Seem Tepid, For Now, But the U.S. Remains the Global Economic Oasis
The latest ADP jobs report last Wednesday showed that 32,000-private payroll jobs were lost last month, in November, well below the economists’ consensus estimate of a 10,000 gain. However, ADP revised its October payrolls to a net 42,000 gain after first reporting a decline of 5,000-jobs, so October represented the first monthly private payroll increase since July. However, ADP also reported that small businesses, with 50 or fewer employees, shed 120,000-jobs, while businesses with more than 50-employees created 90,000-jobs. From this data, the Fed must cut key interest rates this week – due to their jobs mandate.
The next day, the Labor Department reported on Thursday that weekly jobless claims dropped to 191,000, down from 218,000 in the previous week. This dramatic drop in jobless claims was blamed on a “sloppy seasonal” adjustment from Thanksgiving week, according to Pantheon’s Chief Economist, Samuel Tombs. What that tells us is, essentially, this positive weekly jobless claims data should be ignored.
Despite anticipated Fed rate cuts tomorrow, home and rental prices remain soft, which should result in lower shelter costs via “owner’s equivalent rent,” which has been the main inflationary headache most months in the Consumer Price Index (CPI). Although the Labor Department will not be reporting an October CPI, due to the federal government shutdown, the November CPI is expected to be soft.
The news media has been reporting higher electricity prices due to data center demand, but I want to assure you that since the U.S. is the largest natural gas producer in the world, there will be plenty of natural gas to generate electricity for most of the U.S. Natural gas prices are very sensitive to cold weather, since demand soars during cold snaps, so I am selling some of my natural gas-related stocks.
More deflationary pressure is coming from poor demographics in Asia and Northern Europe, including trends toward shrinking households and lackluster economic growth. Some countries that recently slipped into a recession include New Zealand, Thailand and Japan, and the Bank of Mexico just slashed its annual GDP forecast to 0.3%, down from its previous estimate of 0.6%. Germany is now in its third year of a recession and hopes for a recovery have been hindered after the Green Party forced Chancellor Merz to cut new natural gas plant expansion in half, which would perpetuate high electricity prices in Germany.
Britain is also expected to slip into a recession after new middle class tax increases were imposed to fill a larger-than-expected budget deficit after many wealthy citizens fled Britain to avoid these new tax hikes.
In Italy, Prime Minister Giorgia Meloni has been furious that when she tried to deport some immigrants an EU court blocked her deportation orders. The latest attempt by Brussels to annoy Meloni is the EU is asking her to reconsider her plan that the Bank of Italy’s gold reserves belong to the Italian people. Italy has the third largest gold reserves, after the U.S. and Germany, and many Italian families hold gold as a safe haven because of the inflation long associated with the lira, before the euro was born.
So, as you look around the world, the U.S. seems to be the only major economy that is actually growing by more than 1% or so. The Atlanta Fed is currently estimating 3.5% annual GDP growth, and that is expected to reach a 5% annual pace some time in 2026 as more onshoring boosts economic growth.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Although Harvard economist Jason Furman has pointed out that 92% of recent U.S. GDP growth is related to the data center boom, growth will now be boosted by another Fed key interest rate cut, recent tax-cuts and rising order backlogs for data centers. That means economic growth could soar in 2026, with this new economic growth unlikely to be inflationary due to a glut of goods coming from weak global economies.
In other economic news released last week, the Institute of Supply Management (ISM) announced its manufacturing index declined to 48.2 in November, down from 48.7 in October. Any reading below 50-signals a contraction and this was the ninth-straight month that the ISM manufacturing index declined, but one “green shoot” in that report is that the production component rose to 51.4 in November, up from 48.2 in October. Eleven of 15-manufacturing industries surveyed reported a contraction in November, so this deterioration in the manufacturing sector is another reason the Fed has to cut key interest rates this week.
On the positive side, ISM announced on Wednesday its non-manufacturing (service) index rose to 52.6 in November, up from 52.4 in October. Economists were expecting this service index to come in at 52, so this was a nice surprise. The supplier delivery component rose to 54.1 in November, up from 50.8 in October. Also encouraging is that the inventories component rose to 53.4 in November, up from 49.5 in October, and a majority (12 of 17) services industries ISM surveyed expanded in November.
In summary, the U.S. is in the midst of an exciting economic boom, which will expand in 2026. Clearly, all the onshoring of data centers, semiconductors, pharmaceutical and automotive industries is creating an incredible economic growth outlook. The U.S. is energy-independent and has many advantages over competing countries around the world, since overseas manufacturers can circumvent tariffs by onshoring.
Therefore, due to (1) lower crude oil prices, (2) the fact that the U.S. is importing deflation from China, and (3) weak economies around the world, robust U.S. GDP growth will follow and not be inflationary. In my opinion, 2026 could go down in history as “economic nirvana,” with 5% growth and low inflation.
All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.
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