Review & Preview: The Fed’s End Run

Dec 11, 2025 19:55:00 -0500 by Megan Leonhardt | #Markets #Review & Preview

Paying Attention. After a shaky start this morning, stocks jumped in the second half of trading, locking in new records for the Dow Jones Industrial Average and the S&P 500.

The Dow jumped 646 points, or 1.3%. The S&P 500 rose 0.2% on the day. But the tech-heavy Nasdaq Composite never managed to shake off the morning gloom and closed down 0.3%.

Part of the tech jitters came as Oracle’s latest earnings report stoked further anxiety around the artificial-intelligence trade. Oracle spent a record $12 billion in capital expenditures during its latest quarter, far more than the $8.4 billion Wall Street was expecting. The stock was down 10.8% at the close, the biggest loser of the day.

The news kept flowing after the closing bell. Lululemon Athletica posted a better-than-expected fiscal third quarter, along with the announcement that CEO Calvin McDonald would be stepping down on Jan. 31. The stock was up more than 10% in after-hours trading.

Meanwhile, the Federal Reserve made an end run around the Trump administration this afternoon, announcing that the central bank had unanimously reappointed all the regional Reserve Bank presidents to new five-year terms beginning March 1, 2026.

As my colleague Nicole Goodkind reported, the surprise reappointment announcement—which wasn’t expected until February—follows months of speculation that the Trump administration could attempt to reshape the central bank’s leadership through the regional presidents’ recertification process.

Treasury Secretary Scott Bessent and Kevin Hassett, a close economic advisor to President Donald Trump who is currently considered the front-runner to replace Fed Chair Jerome Powell in May, have both suggested the central bank should require regional Fed presidents to live three years in their region before being able to serve. Others had speculated that Trump-aligned governors might object to specific reappointments.

The announcement also arrives before the Supreme Court will hear arguments in the case involving Fed Gov. Lisa Cook next month and review the circumstances of Trump’s attempt to fire her from the board earlier this year.

The announcement should create some stability in the coming months as the Fed grapples with that Supreme Court case and the arrival of a new chair.

Company

Last

Chg

Chg%

Dow Jones Industrial Average

48,458.05

-245.96

-0.51%

S&P 500 Index

6,827.41

-73.59

-1.07%

NASDAQ Composite Index

23,195.17

-398.69

-1.69%

Market Data as of

The Hot Stock: Royal Caribbean Group +7.4%
The Biggest Loser: Oracle -10.8%

Best Sector: Materials +2.2%
Worst Sector: Communication Services -1.0%

Created with Highcharts 9.0.1Thursday, Dec. 11Index performanceSource: FactSet

Created with Highcharts 9.0.1Dec. 11-2.0-1.5-1.0-0.500.51.01.52.0%Dow industrialsS&P 500Nasdaq Composite

Rebuild in Progress?

The U.S. economy is in for a “rebuilding season” next year, much like those undertaken by your favorite sports teams.

I grew up in Cleveland, so I’m more than a little familiar with rebuilding seasons. A star quarterback fizzles, a new hire doesn’t work out—and so it’s back to the basics.

In this case, the U.S. has undergone a major coaching change in President Tump and an aggressive policy agenda that resulted in a strategic reset for the economy and an uneven performance in 2025. The base case for next year? The U.S. will achieve a winning record by the end of 2026, but maybe not enough to secure a playoff berth.

The U.S. economy is expected to grow by 1.8% this year, notwithstanding policy shifts. Next year could look much the same, with growth in GDP ticking up by 1.9%, adjusted for inflation.

But things may feel better due to less policy uncertainty and more stimulus in the form of tax breaks and deregulation. Don’t underestimate the vibes—they’re real. We saw behavioral changes weigh on purchasing and hiring decisions this year.

Much of the feel-good momentum will stem from wealth effects, continued investment in artificial intelligence, and higher tax refunds that should alleviate some pressure on low- and middle-income households. UBS chief economist Jonathan Pingle estimates that there will be an additional $50 billion to $55 billion in refund checks to support spending.

Still, the estimated 1.9% growth rate is marginally below the 2% rate considered healthy for advanced economies. Factors like weak residential investment and a sluggish labor market, particularly in the first half of the year, are expected to weigh on economic momentum.

Weak labor conditions are unlikely to spur a recession, and the job market could strengthen during the year’s second half as policy uncertainty eases, corporate profit margins grow, and companies start passing tariff costs on to consumers. Easier financial conditions should also help, following a string of interest-rate cuts since early September that now have the target range for the fed-funds rate sitting at 3.5% to 3.75%.

Inflation, however, is expected to remain well above the Fed’s 2% annual target next year. That will likely keep the central bank on pause for much of the year. Look for just two more rate cuts by next September—even with a new Fed chair taking the reigns from Jerome Powell in May.

Like most franchises discover, when there are major changes—particularly at the top—it takes some time to get back on solid footing. But while that’s under way, there’s a hopeful vibe in the air.

Read here for my deep dive on the economic outlook.

The Calendar

Several Fed officials are speaking tomorrow, including Philadelphia Fed President Anna Paulson, Cleveland Fed President Beth Hammack and Chicago Fed President Austan Goolsbee.

What We’re Reading Today

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