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January 30, 2026

Brian Pietrangelo [00:00:00]

Cindy Honcharenko [00:03:06]

So the Federal Reserve held the federal funds rate unchanged to 3.5 percent to 3.75 percent. This decision reflects a pause after prior easing, but not a signal of imminent cuts to come. The vote was not unanimous, with Governors Stephen Miran and Christopher Waller dissenting in favor of a 25 basis point cut. Notable changes in the statement were that the committee softened the labor market language and acknowledged signs of stabilization. There were references to downside risks to employment, and those were toned down. Inflation language remained cautious and still described as somewhat elevated. But the overall tone shifted from watching for weakness to waiting for confirmation, reinforcing a pause rather than a pivot. Moving to the press conference, Chair Powell reiterated that the current policy stance is appropriately positioned after earlier cuts. He also noted that there's no preset path for rates. Decisions will follow incoming economic data. Inflation is cooling, but remains above target and labor markets are more balanced. And that the Fed remains independent and focused on its dual mandate. So what are the likelihood of rate cuts in 2026? Right now, the markets are pricing fewer cuts with low odds in early 2026. It's looking more like midyear, June or later is the possible, the earliest plausible window. Expectations center on one to two cuts at most, but not a full easing cycle. And with Fed Chair Powell on his way out as chairman, it's a very low likelihood of additional cuts while he remains chair, which is through May, 2026. Powell did emphasize patience and data dependence despite internal dissents. And any further easing, like I said, will likely happen in 2026, potentially under new chair. Kevin Warsh. George, Rajeev, look forward to hearing what your take is from the FOMC meeting and Kevin Warsh's appointment announcement today.

George Mateyo [00:05:30]

So, Cindy, I don't know if the FOMC meeting that took place this week is the least relevant meeting of all time, but it sure seems like it's already kind of old news. Your description was amazing, as always. I do think it's important to recognize before we leave that point, though, that The Fed did seem to suggest rather that the overall economic story is still solid, the overall growth is still pretty healthy, so the economy by their lights are still pretty good. The labor market, I think they upgraded, but I'm not sure if that's a little premature in the sense that just I think a few hours after the Fed talked about the labor market being on solid ground, we saw a couple of big announcements from some corporates that suggested layoffs might be rising. We'll have to pay attention to that, as always, where the labor market continues to be probably the linchpin for what happens next with the Fed. But I think turning maybe to Warsh, I think it is fair to say that he's a dove today, and every person that comes into that role usually is a dove when they first assume the chair, meaning that rates probably in the near term are still biased to the downside. But we still have to keep in mind, again, that the overall committee is the one that makes the decision. So in other words, it's not going to be one person's decision with respect to interest rates overall. he's been a Fed critic in the past too, which is kind of interesting. And I guess we have to kind of take him in his word for that. Although if I'm being honest, I'm not sure exactly what he means when he talks about overhauling the leadership and kind of redoing the Fed. That has a lot of implications that probably deserves a longer conversation, but I'm not exactly quite sure what that might look like. But in the near term, I think he is probably more supportive of lower rates. We'll see how that plays out as we get through the rest of this year and in the next year if inflation stays a little bit buoyant. He's been one that talks a lot about deregulation, which would probably be another theme of the presidents that we also talked about as being a positive for the economy. And I think the third thing I would probably have our listeners recognize is that usually when somebody takes over this role, markets tend to react. It's kind of interesting to see that just in the short term today, of course, we're starting to see the stock market weak at the margin, bond prices are also weaker a little bit. But more importantly, I think what I've observed in my history of watching markets is that usually there's some type of accident that happens. And it's not because of the Fed, but it usually tests the Fed new chair when he or she usually takes over. And we've seen that with Greenspan, we saw that with Bernanke, we saw that with Yellen. It's interesting to see how the market, within about a year's time or so, maybe sometimes less, sometimes tests the new Fed chair. And I'm not predicting that this time, but I think we have to be open to the possibility that at some point we might actually again see the Fed chair being tested. And we'll have to see what that means for Warsh. I mean, he's been around the seat for a while. He was, of course, at the Fed. when Bernanke took over in 2006, I believe. So I think we have this moment in time that, again, maybe a year from now, we're thinking back about this. Maybe we won't, but I think it is interesting to put that into context in terms of what happens when the Fed share transitions in the past as it's done. So that's my take. Rajeev, over to you. Any thoughts you want to add or anything else you're observing in the bond market?

Rajeev Sharma [00:08:33]

Well, I think these are all really, really good points that Cindy and you, George, have made. Couple of things. I thought it was interesting. I know that the Fed statement that came out, nobody really expected a rate cut at this January FOMC meeting. But I thought it was interesting that the Fed acknowledged that unemployment is normalizing. They removed that language that Cindy talked about, downside risk to unemployment that had elevated. They removed that language. They also acknowledge that inflation is somewhat elevated beyond their 2% goal, but the statement itself kind of cooled down some of the heat on both sides of the Fed's dual mandate. It was also interesting to see the dissents. There were less dissents at this meeting than there were at the December FOMC meeting. Cindy mentioned Steve Miran was one of them. He was calling for 25 basis points of rate cut at this meeting, the January FOMC meeting. But the last time at the December meeting, he was calling for 50 basis points of rate cuts. Temperature cooled down with this statement. If you look at the current makeup of the Fed, you would still need four more voting members to vote for a rate cut. So that's gonna be a challenge. So what that does do is knowing that you would still need four more people to vote for a rate cut, that takes March off the table as well. So everybody's now expecting March to not have a rate cut. It re-emphasizes the mid-year being the first rate cut that we may see. Odds right now are favoring June or July as being maybe the first rate cut for 2026. And if you think about the Fed meeting this week, to me, it felt more like the Fed was mark-to-marketing their statement. The market had not really moved too much right after the statement was released. The immediate market reaction was pretty muted. And I think that's a very good thing, actually. It's good that the market did not react and expect that we're gonna get aggressive rate cuts or expect that March is on the table. The market is pretty pleased with the way the statement read. The market also didn't get any real big surprises from the press conference either. Now, as far as Kevin Warsh goes, former Fed governor, for a long time considered an inflation-fighting hawk. But now, more recently, he's pretty aligned with President Trump on having more aggressive rate cuts. And what the nomination signals is further questions about central bank independence. And it does open the door for policy risks. Policy risk has often been cited as one of the key risks for 2026 and beyond. And I do think that this does open that door further for policy risks with easier monetary policy. Even if Kevin Warsh was considered a hawk before, that's what they consider him now. The markets were already concerned about higher political risk premia, less predictable policy. This also opens the door for preemptive rate cuts. So the initial market reaction that we've seen, as you mentioned, George, hasn't been significant today, but we did see some more steepening of the Treasury curve. So investors are anticipating looser policy going forward. So we do see the front end, which is most influenced by central bank policy, monetary policy. We do see front end yields dropping slightly. And we see longer-term yields being pretty anchored where they are. Overall, though, it's very important for everyone to know that Warsh is going to have to forge some kind of consensus amongst Fed governors. Several of those governors are still aligned with the data dependency house-style monetary policy. So data dependency doesn't go out the window yet. This could probably lead to more dissent than we've seen in the past and less predictable forward guidance.

Brian Pietrangelo [00:12:00]

In addition to that, Rajeev, everyone's going to talk about the Warsh appointment, but let's not forget Stephen Miran's appointment was temporary and ends tomorrow. So let's figure out if he's going to get reappointed, which I think he probably would. And that is also the balance of the Fed governorship. Any comments?

Rajeev Sharma [00:12:16]

Yes, I do think that's a very interesting point, Brian, because I do think I also agree that I think he's going to be reappointed. He made his narrative pretty clear throughout his time. to his limited time that he's had so far with his voting capability. He's often asked for aggressive rate cuts, 50 base point jumbo rate cuts. I do think that that does influence, if he's reappointed, that you will have that one more voting member that's going to push for aggressive rate cuts, and maybe even those preemptive rate cuts that we haven't seen in the past.

Brian Pietrangelo [00:12:47]

Yeah, he's that low dot on the dot plot, self-admitted, so we know who he is. So thanks, Rajeev, Steve, and George, or Rajeev, Cindy, and George, a great update on all that content. Now let's turn to Steve and get his thoughts on the stock market this week. We've got a couple of big tech earnings and some other activity, including some AI news. Steve, what's on your mind?

Steve Hoedt [00:13:05]

Yeah, you know, Brian, the tech earnings came in good enough, and we continue to see the forward earnings line for the S&P 500 head up and to the right. And you know, that's Kind of in our mantra, you've heard us repeat on these calls over and over and over again, which is as long as the earnings number continues to go up into the right, it's difficult to get very bearish on the stock market, no matter what's going on in terms of the news flow from the Fed or out of DC or whatever. So, it's been good from that perspective. There definitely is some bifurcation, though, that's happening in the mega-cap tech earnings. And you saw that with the market responding favorably to what Meta talked about with their spending plans and seeming to be able to monetize some AI, while Microsoft, on the other hand, didn't spend enough for the market. And the market participants started to question what's going on there. I mean, then Apple had good numbers out last night. So, we're off to a pretty good start with the mega cap numbers that came out this week. We get the balance of them X Nvidia next week. So we'll have to see how it goes. But so far, so good. And I think that was really kind of the bar. People have to understand that the bar was pretty high coming in this quarter and the numbers are coming in at a level that exceeds that high bar. So good good Q4 numbers. When you think about where the market sits today, this week has been a week of churning. We've continued to churn below the all-time high levels that we made a couple of weeks ago. Don't see anything really nefarious going on under the hood, irrespective of the bouncing around that we're having today in response to the Fed news. I think most market participants have come to this idea that no matter how hawkish the Fed stuff is talked about, the Fed chair is always a dove when push comes to shove. So, I think it was also interesting to hear George reference the challenges that every Fed chair since Greenspan has had. And I think he's being charitable about them maybe not causing it, because I think if you go back and you look at some of the stuff that caused the market gyration, shall we say, it was oftentimes confusing messages that came out of those Fed chairs. So, it'll be interesting to see if we get the same kind of stuff this time, but that plays right into our... our 2026 outlook, Brian, where we talked about how it was going to be a solid first half of the year. And then once you get into the second-half of the year with the new Fed chair, kind of all bets are off. And I think that that's still kind of the scenario that we see in front of us here, where you've got this run hot economy that looks like we're on a pretty solid glide plane for half one and half two with a new Fed chair. Who knows what we're going to get?

Brian Pietrangelo [00:16:09]

Great reminder for our listeners, Steve. Thanks for that, especially on the outlook. George, any final comments for our audience today?

George Mateyo [00:16:18]

Well, there's a lot to chew on there. We covered a lot of ground in the last 15 or so minutes, Brian. So thanks, Cindy, Rajeev, and Steve for all your great insights. I guess I would just echo what Steve said too, where I think you wouldn't be surprised to see some continued churn, some continued volatility. We still think that it makes sense to be basically neutral towards your risk positioning, meaning overall, we're not advocating for getting too far on the risk curve, but we do think there's opportunities inside the market too. And Steve talked about the fact that we've seen, frankly, a little bit of discernment amongst the AI trade. That's one thing we've also signaled in our outlook, where we don't think that it's going to be a rising tide lifts all boats. And we're also seeing the broadening of the market take over as well, meaning that there's going to be more participation beyond just seven stocks that dominate the headlines. And we're starting to see that kind of play out in our portfolios. And so the third thing, Brian, I'm close with, I think as this market continues to maybe churn a little bit to Steve's term, I think quality is going to be an enduring theme. Quality is one of those factors, frankly, that didn't do so well last year. We saw a lot of the low-quality companies rise to the top that really kind of drove some certain market segments of the market. But I think more discernment is going to be a good thing for the market, and more quality participation in the market would be good too. So I would stick with quality, and I would also continue to bet in human ingenuity as a long-term benefit to portfolios and the economy as well.

Brian Pietrangelo [00:17:35]

Well, thank you for the conversation today. George, Steve, Rajeev, and Cindy, we appreciate your perspectives. And as one additional reminder for everybody, please take a look at key.com/wealthinsights for our 2026 Economic and Market Outlook written document that gives you our perspective on what we think is going to happen during the year. It's quite robust and will give you a lot of insight. So if you haven't taken a look at that, please take a look at that as well. It'll be very informative for you. Well, thanks to our listeners for joining us today, and be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results, and we know your financial situation is personal to you. So reach out to your relationship manager, portfolio strategist, or financial advisor for more information, and we'll catch up with them next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

Disclosure [00:18:32]

We gather data and information from specialized sources and financial databases, including, but not limited to, Bloomberg Finance LP, Bureau of Economic Analysis, Bureau of Labor Statistics, Chicago Board of Exchange Volatility Index, Dow Jones and Dow Jones NewsPlus, FactSet, Federal Reserve and corresponding 12 district banks, Federal Open Market Committee, ICE Bank of America Move Index, Morningstar and Morningstar.com, Standard & Poor's, and Wall Street Journal and wsj.com. Key Wealth, Key Private Bank, Key Family Wealth, KeyBank Institutional Advisors, and Key Private Client are marketing names for KeyBank National Association, or KeyBank, and certain affiliates, such as Key Investment Services LLC, or KIS, and KeyCorp Insurance Agency USA, Inc., or KIA. The Key Wealth Institute is comprised of financial professionals representing KeyBank and certain affiliates, such as KIS and KIA. Any opinions, projections, or recommendations contained herein are subject to change without notice, are those of the individual authors, and may not necessarily represent the views of KeyBank or any of its subsidiaries or affiliates. This material presented is for informational purposes only and is not intended to be an offer, recommendation, or solicitation to purchase or sell any security or product or to employ a specific investment or tax planning strategy. KeyBank nor its subsidiaries or affiliates represent, warrant, or guarantee that this material is accurate, complete, or suitable for any purpose or any investor. It should not be used as a basis for investment or tax planning decision. It is not to be relied upon or used in substitution for the exercise of independent judgment. It should not be construed as individual tax, legal, or financial advice. Investment products, brokerage, and investment advisory services are offered through KIS, Member FINRA, SIPC, and SEC-registered investment advisor. Insurance products are offered through KIA. Insurance products offered through KIA are underwritten by and the obligation of insurance companies that are not affiliated with KeyBank. Non-deposit products are not FDIC-insured, not bank-guaranteed, may lose value, not a deposit, not insured by any federal or state government agency.

January 23, 2026

Brian Pietrangelo [00:00:00]

Welcome to the Key Wealth Matters weekly podcast, where we casually ramble on about important topics, including the markets, the economy, human ingenuity, and almost anything under the sun, giving you the keys to open doors in the world of investing. Today is Friday, January 23rd, 2026. I'm Brian Pietrangelo, and welcome to the podcast. We start today's podcast with a congratulations last Monday to the Indiana Hoosiers for the championship of the College Football Playoff series here in 2026. What A remarkable story for Coach Cignetti and all the players for winning that championship and running the table with an undefeated season. What a great, great story. And second, a little bit less known, today is actually National Handwriting Day. So that seems to be a lost art given the digitization that we all live in on a daily basis, but it might be worth writing a handwritten note to a friend, colleague, or a family member. Last year, I had the opportunity to receive a gift of one of the famous Mont Blanc pens, and I gotta tell you, it's really, really cool. So if you have an opportunity to do some handwriting, again, take advantage of it. With that, I would like to introduce our panel of investing experts here to share their insights on this week market activity and more. And on a regular basis, they put pen to paper to put their thoughts on the markets and the economy in writing as we do verbally here in the podcast. So welcome Steve Hoedt, Head of Equities, and Rajeev Sharma, Head of Fixed Income. As a reminder, a lot of great content is available on key.com/wealthinsights, including updates from our Wealth Institute on many different subjects and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor. Taking a look at this week's market and economic news, we've got four key updates for you on the economic front and three other updates on the markets. First up, we've got the weekly initial unemployment claims, which remain very stable, so no reason to give you an update because it's pretty good. On the second side, we've got the update for the gross domestic product for the third quarter of 2025. And the number came in at 4.4% with the updated estimate, which was up 1/10 of a percent from the initial estimate that came out. And again, some of these numbers are delayed due to the government shutdown that occurred last year, but nonetheless, pretty good news. The results reflect increases in consumer spending, also some government spending, as well as investments. And third, overall inflation as measured by the Personal Consumptions Expenditures Index, or known as PCE, came in fairly stable for the months of October and November with a two-month catch-up, and in general, it stayed the same, but it's still persistent. On a year-over-year basis, PCE expenditures were 2.8%, and excluding food and energy, it was also 2.8%. Now, this is important because PCE inflation is the Federal Reserve's preferred measure as looking at inflation in terms of trying to get to their target of 2%, which leads us to the 4th update, which is that the Federal Open Market Committee meeting is next week, and we'll continue to watch that for exciting news. Now, in market and other news, we've got 3 updates. We have no update from the Supreme Court on President Trump's IEPA, or International Emergency Economic Powers Act, ruling yet. It has been estimated that there will be a ruling soon, but it might take some more time. Second, we also have the Supreme Court hearing from Governor Cook in terms of the Federal Reserve and the implications of her job in terms of overall stability regarding Trump's accusations around impropriety. The original tone of the hearing seemed to favor Governor Cook, and so we'll give you more information as that continues to come out in the newswires. And last, we've got updates from Steve on Q4 earnings and how we're going this far in the quarter, so we will start there. Steve, let's hear your thoughts on what's happening in the market and specifically your thoughts on Q4 earnings season. Steve?

Steven Hoedt [00:04:14]

Brian, when we look at earnings starting this week, earnings season kicking off in earnest, and for the S&P 500, we saw yet another climb higher in the index aggregate earnings as the companies that have reported have largely at least met enough expectations to have gotten fairly decent reaction out of the market. And we've seen the earnings line climb for the S&P up to $314, continuing to move up into the right. What we've said for quite a while is that we thought that this quarter's expectations were low enough that companies would be able to come in and do pretty well, and that's what we see so far. Now, clearly we're only about 15 to 20% of the way through earnings season. We've got the big companies coming in the next two weeks. So we'll have a little bit better read as we go through the next couple of weeks, how things are going to settle out. But as we sit today, right now, the bank earnings came in good across the board pretty much. And that was a really good sign for the market. So, nothing on the earnings front that looks like it's going to get in the way and derail derail what's happening on the price side is in terms of is move as in terms of moving higher. Um, you know, when you look at the S&P 500 for the week, um, essentially if you were to go on vacation this week and just not come back, you would look at it and go, oh, what happened this week? The market didn't go anywhere. Uh, we're because we're basically at the same place we were last Friday. Um, but that, that doesn't really encapsulate the story. Um, with kind of the Greenland reaction on Monday and giving us the opportunity to see the market when it opened on Tuesday, gap down. We basically spent the whole week recovering from that as things kind of backed off and came off the boil there. So, I think what we said from a price action perspective on Tuesday morning still holds, and that is that the market is near that 50-day moving average, which is up until the right sloping. Most of the pullbacks during the bull market phase that we've been in since April have been shallow and have been contained by the 50-day, and that we thought that this was no different this time in terms of being able to just kind of pull back and reset things. Now, we'd like to see the market move and make a new three-month high yet again, which right now is sitting at 69.86. The market today is at 69.20. So we need to get up close to 7,000 to start to see the market reassert itself to the upside. But what we see here right now, there's nothing nefarious in this price action at all. It kind of smells to us like the market is marking time while we get the earnings numbers out that we talked about at the top of the call. And if earnings come out the way that we think, we should see this market resolve itself to the upside. Now, underneath the hood, there's been a lot of stuff going on. Breadth has been good. which means we've seen a broadening out in the market beyond the MAG 7. But importantly, we've seen sector rotation and we've seen, as the MAG 7 names have come off, we've seen the 493, for lack of a better word, go up into the right and make new highs. But even more so under the hood from that, if you were to go in and look at technology stocks, for example, tech stocks peaked in October, they've been kind of weak. in as a group since October. Healthcare, on the other hand, has been going up into the right since last July. So there's been a clear rotation under the hood of this market toward kind of what I would call quality growth and away from, you know, a tech levered AI high growth kind of stuff that that stuff has come off the boil a little bit. And from our perspective, that's been a very healthy thing for this market because you've seen the this broadening out and participation. But the caveat to that is with 40% of the S&P 500's market cap tied up in those mega cap names, if those names are not rip-roaring off into the sunset, it creates a difficult environment for the index to make a lot of headway to the upside. So we believe that this is an environment that's really ripe for stock picking, for active management in particular, because you can come down and you can play in some of these 493 names. that seem to be garnering some positive momentum relative to the market cap leaders that have kind of dominated trading since we came out of the pandemic, at least. So we think that this is a really intriguing market right now, Brian, as we get through here into the third week of January.

Brian Pietrangelo [00:09:29]

Great summary, Steve. And we talked about going on vacation this week and coming back and seeing nothing, but the VIX did pop up a little bit. And I would ask your opinion that it's really more due to some news and noise that we hear rather than some really market underlying fear.

Steve Hoedt [00:09:42]

That's correct. You know, the VIX had gotten down to levels that were very, very low. You know, when you're down in that 14 area, it gets to be It doesn't take much to make it move, let's put it that way. So when you've got kind of this surprise reaction to the Greenland stuff over the weekend, it was not a great shock to see volatility pop on the open on Tuesday. We don't see it, though, as being anything nefarious. It's a normal reaction to the market. It would take a significant shock higher in volatility to derail the good things right now. And we just don't see, at least right now, anything that would do that. Thank you, Steve.

Brian Pietrangelo [00:10:33]

Now let's turn to Rajeev to talk a little bit about the bond market leading off with the PCE inflation report that we got this week and what it may or may not mean anything for the Fed meeting next week. Rajeev?

Rajeev Sharma [00:10:44]

Well, Brian, yeah, you're absolutely right. We did see that PCE data that did come out this week. The market took it for what it was. It was stale information. Even if the headline number was slightly better than consensus in some areas, what it did do is validate the Fed's rate cut decisions that they made last year. The PCE data on its own really didn't do much to signal any future amount of rate cuts or how deep we go with the rate cuts. But there were some highlights that did stand out, one being that this was the fourth time in a row that monthly core inflation is at or below the low 0.2%. That's a pace that's consistent with the Fed's 2% target. But again, the data is stale. And it's impacted by the government shutdown. So it doesn't really bring enough to change or clarify the inflation picture for the Fed or for the markets, for that matter. Now, yields this week across the Treasury curve, they moved quite a bit in respect to some of the points that Steve made. There was quite a bit of movement on the Treasury curve. And most of that movement happened after President Trump said he doesn't plan to use force to acquire Greenland. In fact, if you graph the intraday timeline of those comments, we would see the 10-year treasury note yield immediately fall about two basis points as the market heard, quote unquote, no military action. We also saw the curve re-steepen. So the differential between a two-year treasury note and a 10-year treasury note hit its narrowest level in four years. It's just about over 60 basis points. So the markets are back on focusing on other things now outside of Greenland. The market's back to focusing on earnings, growth and Fed policy. Now we do have a Fed meeting next week and the odds of a rate cut at that meeting are pretty much zero. The market has already been aligned with that. The market's not expecting any rate cuts to the midpoint of 2026. Traders appear a bit split on the timing of when that first rate cut will come in 2026. They are weighing between the June FOMC meeting and the July FOMC meeting and up to a couple of weeks ago, And right after the December FOMC meeting, I think the market was pretty much squarely focused on the June FOMC meeting being that meeting where we get our first rate cut. But those have kind of shifted towards July now. And that has a lot to do with the mixed data that's pointing to a lower unemployment rate and maybe a slight moderation in inflation. Now, you add to that questions about the independence of the Fed, these market expectations are likely to shift. As soon as we start getting more comments from Supreme Court justices that indicate whether they would rule in favor of Fed Governor Lisa Cook or the US government, early indications do point towards the fact that they're leaning towards Lisa Cook. So that, again, brings the question about Fed independence. And not only that, we have to contend with the fact that everybody knows Fed Chair Powell's term ends in May. There's a lot of headline news out there, who could be the next Fed Chair. And I think that we've heard about four or five contenders that are in that list. I think when we started this whole process, there are almost 11 people that could have been considered for the role. Now we've kind of narrowed down to a short list of about four to five contenders. Those include Michelle Bowman, Chris Waller, Kevin Warsh, and Rick Rieder. Trump told reporters that he expects to name a successor soon. And we also heard from Secretary Scott Bessent that said the president may decide as soon as next week. So the markets are closely watching this. Meanwhile, I mean, we haven't seen much on credit spreads. I mean, you know, Steve talked about the big drop that we saw right after the news hit the airwaves on Monday. And I believe beginning part of the week, we saw such a big drop in the S&P 500. If you try to map that against credit spreads, they hardly budged. Credit spreads have continually been in this extremely tight holding pattern that's even in the face of record amount of new issuance that we're seeing for the month of January. Credit spreads are just not wavering. The demand is so great for investment-grade corporate bonds that spreads remain tight to the point where many people are wondering if this is complacency that's set into the market. But there has to be some kind of catalyst for spreads to go wider, and Greenland was not that catalyst. Great, Rajeev. And let's go back to the Fed chair replacement. If you're a regular listener on this podcast, you know that has changed significantly in the last few weeks where Kevin Hassett used to be a leading candidate. What are your thoughts on why he's not anymore? You know, I think Trump really likes the role that Kevin Hassett is in right now. And he made the comments that he'd like to keep him in that role. And I think that really took away him from all the Polymarket and Kalshi websites out there. He was the front runner. And he actually came out, pretty much said that he'd be happy doing what he does right now. So, I really do think that that took him out of the running. He's not on those websites anymore. They're trying to make those odds. But I think it does come down to a pretty nice tight match right now of who it could be. A lot of eyes are on Kevin Warsh, and that's most likely the front runner at this point. It'll be interesting to see how that plays out, but it's going to be a name that's probably going to announce sooner rather than later.

Brian Pietrangelo [00:15:59]

Great. Thanks, Rajeev. And for our last segment of the podcast today, we're going to do a little bit of round robin between Steve and Rajeev, focusing on some of the Trump policies. Now, we all know that there's policies that are talked about. Some get implemented, some don't get implemented, and that's okay. But our job is to try and figure out what the implications, if some of the policies were to be implemented, what would it mean for the stock market, the bond market, and the economy? So let's start off with this limit on the credit card rates for 10%. What do you think that might mean for some of the banks, Steve? And then on your side, Rajeev, what does it mean for the markets?

Steve Hoedt [00:16:35]

So it wouldn't be good for the banks. Let's put it that way. It would be a mess to implement. Now, at the same time, you have seen a couple of large banks talk about rolling out products with a 10% interest rate limit on it, which is interesting to me. because it shows that they're trying to do something that the administration would view favorably in order not to have to have the wholesale change. So, you know, it seems to me that we are going to get something that pushes in that direction, but it's going to be more like on product innovation than it is going to be a wholesale change. Because at the end of the day, it takes an act of Congress to change the maximum or minimum rate that could be set on a credit card. And to be honest, there's been enough lobbying done that that's not likely going to happen anytime soon in Congress. So, it'll be something to watch. But from our chair, we don't see it as having a huge impact, at least near term.

Rajeev Sharma [00:17:49]

Yeah, and I would add that It's very interesting. And to Steve's point, the bank lobbying groups out there, I think they're going to definitely try their best not to let something like this happen. But if we do play this out, I think for the fixed income markets, the big impact on that 10% cap would be the $70 billion credit card ABS sector. We could see spread widening there. You could see reduced issuance of credit card ABS. I guess bank funding costs would drift higher as well. And If you look specifically within the fixed income corporate bond universe, I think there'd be wider spreads between subordinate and senior debt for banks. And that could be something very interesting to see because that spread has actually narrowed quite a bit over the last several years. Any widening of that would signal something there. So I think what we'd have to keep in charge. So far, right, we haven't seen too much widening on the news or the headlines, but sub-senior subordinate and senior debt would definitely widen out.

Steve Hoedt [00:18:50]

I mean, the market doesn't think anything's going to happen, I don't think. But the thing that I caution, and Brian, maybe it goes to the broader point on this, is that the administration, when they put out this stuff, it oftentimes sounds crazy and people don't think that anything's going to happen, but it's been kind of amazing to watch how... At the margin, at least, a lot of the stuff that they talk about, there is stuff that ends up getting done, no matter how quote unquote crazy it sounds when things come out in the first place. So I was skeptical originally when we heard about this, but I wouldn't doubt that at some point something happened.

Rajeev Sharma [00:19:34]

Yeah, and to that point, Scott Bessent came out this week and said the bank shouldn't be too worried because they're already going to get the benefit of the deregulation.

Steve Hoedt [00:19:41]

Yeah.

Brian Pietrangelo [00:19:43]

Very interesting. Very interesting. Our number two topic for today, Fannie and Freddie buying 200 million in mortgage backed bonds due to Trump's instructions. Is this actually happening, Rajeev? And what does it mean in the bond market? And then afterwards, Steve, what do you think it will mean? Does it actually prop up home buying?

Rajeev Sharma [00:20:03]

So what this really does, Brian, I think that, you know, puts downward pressure on mortgage rates. In the bond market, it's actually being viewed as a quantitative easing shock, and it would be one of the largest non-Fed interventions if it went through in the MBS market, mortgage-backed security market. So you're talking about a non-Fed intervention causing an artificial demand spike. And of course, it raises the questions about GSE independence. This is a very interesting thing that's being posed out there. It's also very interesting of what the impact it would be on homebuyers. Would it limit homebuyers in any way or limit how homebuyers look at this market? Rates start to come down because of this. I think that would be very interesting. But right now, I think it would-- the number one direct impact would be downward pressure on mortgage rates.

Brian Pietrangelo [00:20:59]

Just a quick program note before Steve gives his answer. My apologies for giving acronyms, but FANI is the Federal National Mortgage Association, and FREDI is the Federal Home Loan Mortgage Corporation. So these are GSEs or government sponsored enterprises that are pseudo government entities that help in the mortgage market. So, Steve, with that backdrop, as an education, just what are your thoughts on house demand and supply from this?

Steve Hoedt [00:21:22]

So I think it's hard to see exactly what the impact is going to be. It should be a little bit positive at the margin if mortgage rates do come down as a result of this. You know, that's been one of the things that the administration has been trying to do is to get some kind of movement into the home market, because I think that there has been a bit of stapest as we've had mortgage rates kind of stuck around levels that have been a lot higher than what they've been over the last 10 years. At the same time for us, it really does though come down to the signaling about the economy. And the fact, this is another way to kind of play that deregulation angle. At the end of the day, they're going to pull as many levers as possible to do as much as they can in order to make the economy run hot. And that is a bullish setup for both the economy running hot at, say, what, 5% GDP to throw a number out. And then that that translates directly through the earnings, which pushes stock prices higher. So from our perspective, this is a really strong backdrop for stocks and for the economy should be that should flow through the house prices, too, Brian, at the end of the day. And I think if people are if people have jobs because of this or whatever, it it'll push, push, continue to push things up to the right.

Brian Pietrangelo [00:22:56]

Great. And Steve, why don't you finish the third topic with your comments here on the podcast on housing with President Trump's insinuation of tapping and having no institutional buyers purchasing homes and leaving it to regular homeowners. What are your thoughts on that? And that'll conclude the podcast.

Steve Hoedt [00:23:13]

Yeah, they've had, there have been institutional buying in the home market that has reduced supply. whether it's private equity firms that have gotten involved in the space or a couple publicly traded REITs that have gotten fairly large. I would tell you that at the margin, we don't think that the impact on the market has been all that huge from this, but there has been some. You can't say there's been none. And I think the signaling is very important that, again, they're going to try to do things to help regular people as opposed to setting up the system to benefit these corporate entities or private equity. And at the margin, that's a populist message that the administration ran on. And I think that when they say things like this, you need to take them at their word and they'll likely follow through on it. So, I think that there's, there will definitely be impacts. Exactly what they're going to be, I don't know, but I think we're going to have to watch it because when they say something, you take them at their word. And I think that there will be some kind of action on this, Brian.

Brian Pietrangelo [00:24:29]

Well, thank you for the conversation today, Steve and Rajeev. We appreciate your insights. And thanks to our listeners for joining us today. Be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results, and we know your financial situation is personal to you. So reach out to your relationship manager, portfolio strategist, or financial advisor for more information, and we'll catch up with you next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

Disclosure [00:25:02]

The Key Wealth Institute is comprised of financial professionals representing KeyBank and certain affiliates, such as KIS and KIA. Any opinions, projections, or recommendations contained herein are subject to change without notice, are those of the individual authors, and may not necessarily represent the views of KeyBank or any of its subsidiaries or affiliates.

This material presented is for informational purposes only and is not intended to be an offer, recommendation, or solicitation to purchase or sell any security or product or to employ a specific investment or tax planning strategy. KeyBank nor its subsidiaries or affiliates represent, warrant, or guarantee that this material is accurate, complete, or suitable for any purpose or any investor. It should not be used as a basis for investment or tax planning decision.

It is not to be relied upon or used in substitution for the exercise of independent judgment. It should not be construed as individual tax, legal, or financial advice. Investment products, brokerage, and investment advisory services are offered through KIS, Member FINRA, SIPC, and SEC-registered investment advisor. Insurance products are offered through KIA. Insurance products offered through KIA are underwritten by and the obligation of insurance companies that are not affiliated with KeyBank. Non-deposit products are not FDIC-insured, not bank-guaranteed, may lose value, not a deposit, not insured by any federal or state government agency.

January 16, 2026

Brian Pietrangelo [00:00:00]

Welcome to the Key Wealth Matters weekly podcast, where we casually ramble on about important topics, including the markets, the economy, human ingenuity, and almost anything under the sun, giving you the keys to open doors in the world of investing. Today is Friday, January 16th, 2026. I'm Brian Pietrangelo, and welcome to the podcast. If you are a football fan, you're pretty happy this week with the routine games on TV for the NFL playoffs. And in addition, on Monday evening, we've got the College Football Series playoff championship game. Good luck to the Miami Hurricanes and especially to the Indiana Hoosiers. With that, I would like to introduce our panel of investing champions. Here to share their insights on this week's market activity and more. George Mateyo, Chief Investment Officer, Rajeev Sharma, Head of Fixed Income, and Michael Bove, Senior Equity Research Analyst. As a reminder, a lot of great content is available on key.com/wealthinsights, including updates from our Wealth Institute on many different subjects, and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor. Taking a look at this week's market and economic activity, we've got four key economic reports for you to share with you this week. And then we've got a couple other topics to chat about with our panel. So looking forward to that with our group today. On the economic report front, first up is the Consumer Price Index measure of inflation, which came out for December 2025. The month-over-month numbers were fairly the same at 0.3 and 0.2% for all items and core. And that leads into the year-over-year numbers. which stayed the same. Specifically, October, November, and December were three months where October was not collected. So November of 2025, year-over-year inflation for all items was 2.7%, and that was the same for December that was released this week, 2.7%. Core items, excluding food and energy, in November, 2.6%, also in December, 2.6%. So ultimately, this means that inflation continues to be persistent, moderating very slowly, the good news being not going up, the bad news being not going down at a quicker pace. So we'll talk about that with our panel today. And second, for the month of November 2025, the Advanced Monthly Retail Sales Report was produced, and it came out at a 0.6% monthly increase over the prior month of October, which was a pretty healthy spend in terms of overall consumer spending. Now this follows an October number, which was essentially flat, so seeing some increase in November is a good sign right now, but we'll have to see how this shakes out for the remainder of the year as we get past the December report. And third, on Wednesday of this week, the Federal Reserve released its beige book, which comes two weeks in advance of its upcoming meeting on the 27th and 28th of January. And the overall economic activity summary showed that two-thirds of the twelve districts, so eight of the twelve districts, showed slight to modest pace of overall economic activity. The remaining 3 districts reported no change and one reported a modest decline. This is a slight improvement over the last few Beige Book reports, which basically had showed limited to no activity, so I guess that means the market is headed in a little bit of a right direction as we go forward here in the new year 2026. On the labor front within the Beige Book Report, eight of the twelve districts basically reported no changes in hiring. So as we have talked about on the podcast and elsewhere, the slow to fire and slow to hire dynamic seems to be playing out within the Beige Book Report. And 4th, when we look at the initial unemployment claims for the week ending January 10th, the number declined from the prior week down to 198,000. Again, we have shared with you that this has remained very favorable for the last 18 to 24 months, being fairly stable and not increasing, therefore showing, again, stability in the labor market when it comes to layoffs. In other related news for the week, we've got 3 updates for you. First, we begin the fourth quarter earnings season with a number of reports. We'll touch upon that likely next week. We also had an anticipation that the Supreme Court would provide its ruling on the IEPA tariffs. We did not get that release yet in terms of a decision from the overall Supreme Court yet. And even though it seems like old news, just last week on Sunday, there was an investigation into (Federal Reserve) Chair (Jerome)Powell regarding the new structure of the Federal Reserve building and the costs associated with it. And for the first time, I think ever, if not in a long time, Jay Powell actually responded with a public statement regarding Fed independence. So we'll talk about that with Rajeev and the panel today. With that, let's begin our podcast by going to George to get his take on CPI, other economic data, and his thoughts for the week. George?

George Mateyo [00:05:13]

So Brian, we're finally getting some economic data on a pretty consistent basis now, and I think we're almost caught up where we were with all the shutdowns from a few weeks ago, maybe months ago now. And the picture is still pretty decent. I mean, the Inflation data, as you suggested, is kind of calming down a little bit. It's not running out of control. I do think that there might be a little bit of some catch-up still with the data on the inflation side that we haven't quite seen yet. And of course, we just don't know. We still don't know, frankly, what the impact of tariffs might be. So, I think there's maybe a question mark, but some moderation still inflation that doesn't suggest it's getting worrisome anyway. Retail sales that we've kind of caught up to in that as well. We've seen some big pickup there. So the overall consumer, the strength of consumers seems to be in a pretty good place right now. And that's maybe kind of supported by holiday spending and other things too. But it is somewhat a K-shaped dynamic, as we talked about, where high-end consumers are doing quite well and spending, I wouldn't say freely, but they're comfortable, right? And the low end, unfortunately, is not. But nonetheless, the overall numbers suggest that the economy, from the consumer's perspective, is good. And then lastly, of course, you mentioned, of course, is the employment situation. And we look at things like unemployment claims, which is curious in the sense that if you look over the history of the data series, it's a good series we'd like to look at because it's very current, it's very timely. And also, we have a lot of history with it. And it goes back to, I think, the early 1960s in terms of its data series. And if you look at the most recent reading, it suggests that we're probably in the top two or one or 2% in terms of the overall level of claims being as low as they are, meaning that there's probably been 98% of readings that have been higher than where we are today. So that suggests that, again, the overall labor market is a good place. Now, I would caveat that in the sense that... Some of the other survey data that people point to suggest that maybe that number is somewhat artificially better than it appears. And by that I mean there are people that frankly just don't file for unemployment claims as much as it did in the past. So it's not the same thing that we could look at back in the 1960s, say, and draw some inference to today. The other thing people have to keep in mind is that when people are working, but they're probably in a job that they don't want to be in, but they're looking for more permanent work, that actually doesn't count as people applying for unemployment insurance. So again, that number might be somewhat artificially low. And again, the Fed has to kind of wrestle with that in the sense that they have some of these confusing signals that they're drawing from. I think it also suggests that maybe we just don't know the true strength of the labor market because of some other policy issues that we talked about on these podcasts and other places as well. So it does seem to be kind of an interesting setup for the Fed Irrespective of what's happening inside the Fed building or around the Fed building these days lately. But I've seen a few people now suggest that maybe the Fed won't cut it all this year. And one actually, one I think investment bank came out this week and said the Fed might actually hike rates sometime at the end of this year or early next year. What are your thoughts, Rajeev, about that? And at the same time, I guess we should also talk about credit spreads at some point too. But let's talk about the Fed first and kind of what you're thinking about with respect to the Fed and their policy for the rest of this year.

Rajeev Sharma [00:08:14]

That's very interesting that you say that, George. I've also heard some people calling for three or four rate cuts this year, some calling for none, as you said. And the rate hike is a new one. I haven't seen that yet. But that just shows you how much uncertainty there is in the market about what the Fed's next action are going to be. The latest CPI data gives the market a very clear signal that January, there is not going to be a rate cut. It's pretty much off the table. I think last time I checked, the market expectations were about 4% for a January rate cut. So you can discount that, that it's not going to happen in January. And the inflation numbers strengthen the expectation that there will not be a January rate cut. The numbers are pretty much consensus numbers, but that's not enough disinflation for the Fed to feel comfortable to cut rates where we are right now. Traders are not expecting it either. Inflation is still above the Fed's comfort zone. The Fed narrative continues to point towards their target of 2%. And then you add to that some of this political noise that we're seeing, that we were hearing since last Sunday, and that the markets are even more skeptical that, amidst all this noise, that they would make a move in January. So January's off, and then you also throw in the Fed's dual mandate, as you mentioned, which is labor, with unemployment dipping to 4.4%, there is no immediate pressure for the Fed to do a rate cut right now. So what does the market expect? Right now, if you look at rate cut expectations, the market continues to point towards two rate cuts for this year, with the June FOMC meeting likely being the first rate cut of the year. So what we saw in the bond markets this week was taking all of this into account, taking what happened as far as some questions around Fed independence. We did see that the bond markets this week saw treasury yields move lower. Front-end yields went lower on this increased confidence in those two rate cuts for the year. Long-end yields, they eased on the inflation report, and some safety haven asset buyers, they actually stepped in. So you did see some investors come in and buy treasuries where they are right now, especially in the 10-year and beyond part of the curve. But the political noise that you mentioned here around Fed independence, I think, is also important that we highlighted. It led to somewhat of a risk-off tone in the beginning of the week, but that did help the Treasury market. We did see investment-grade credit spreads tighten modestly this week. Credit spreads were about two basis points tighter in investment grade, and high-yield credit spreads were tighter by about four basis points on the week. So essentially, if you look at as we started the week and as we ended up the week, you could pretty much say the market shrugged off the news of the Fed subpoenas and Powell's statement last Sunday. But I do feel that Fed independence is still a key consideration in our market outlook, and a clearer picture should emerge as we get closer to Powell's term ending in May. Powell did use his statement to clearly articulate the confrontations between the executive branch and the central bank and the importance of Fed independence. (Janet) Yellen, (Ben) Bernanke, and (Alan) Greenspan, they all came out, issued a joint statement reiterating their support for Powell and the independence of the Fed. So I think right now the market's kind of trying to weigh their way through the political noise. We have so many other uncertainties in the market right now, but spreads are very well behaved in this market and safety haven buyers are stepping in.

George Mateyo [00:11:21]

Well, I'm glad you closed on that point about spread because I kind of teased that a little bit earlier before I tossed it over you, Rajeev, but let's stay on that theme for a second in the sense that credit spreads, of course, are a proxy for risk, as we like to think about in the sense that that's maybe the extra compensation an investor can earn by taking on additional risk than owning, say, a US treasury, which historically has been viewed as the safe haven asset. And now credit spreads, when I look at that, according to my screen anyway, we're at really pretty much all-time lows or all-time tights, as people would say, in the industry. And to some extent, as you said, that's a good sign for the economy. It's a good sign for overall, I guess, risk appetite, but it also has kind of some feeling that maybe people are too complacent or maybe too risk averse. And I've also seen some other survey data. When you look at people's actually overall portfolios, they're actually fairly complacently positioned, meaning that they don't think many bad things are going to happen. And I'm not saying we want to lean against that in a big way, but we have to be cognizant of which, when that switches, things could come unwound pretty quickly. So how are you thinking about that? And is that something that's on your radar? And I know you were talking to investors this week. Anything that you've heard from them when you're on the road?

Rajeev Sharma [00:12:31]

It's a very good point, George, because credit spreads are a good proxy for the health of the markets. We have seen credit spreads hit these all-time tights. And that's even after we had almost $2 trillion of new issuance last year. And we expect another banner year for new issuance. So supply is huge. But spreads remain very tight. And one of the factors behind that is demand technicals. There's a lot of demand for blue chip companies that are getting pretty decent coupons on. You're getting good income opportunities with some very, very solid companies out there. So investors feel comfortable investing in these blue chip companies and feeling that everything will be fine. The complacency factor, I think, is something that's going to be a very important issue for high yield credit spreads because they continue to be extremely tight as well. And all you need is one default to happen, and you can start seeing a ripple effect there. But default rates have been extremely low as well. So the confidence in the market, I think, is two-pronged. One, that these are very, very high-quality companies that are out there with very good coupons. The other aspect of it is the fact that there could be some complacency in the market. You would just need some default reaction in the high-yield part of the market to have a ripple effect, in my opinion. Well, thank you, Rajeev and George, for having that significant discussion on the credit markets.

Brian Pietrangelo [00:13:48]

I think it's very valuable for our audience. At this time, we'll close the podcast with our final segment with a special guest that we have. Michael Bove is joining us, Senior Equity Research Analyst within KeyWealth, to talk about what's happening in the energy markets and specifically artificial intelligence and electricity prices. So from that perspective, Michael, let's start out with talking about electricity demand. What does the past look like and what has changed?

Michael Bove [00:14:16]

Hey, thank you for having me first. In terms of electricity demand in the U.S., really the past hasn't been too interesting at all. From 2005 to 2020, the average annual demand growth in the U.S. was only 0.1%. So, it was practically flat over. call it a decade and a half. And the reason for this is while you had population and economic growth, this was offset by efficiency improvements. Think LED light bulbs, energy efficient appliances, paired with a more service-based economy, which is less energy intensive than manufacturing. Today, we obviously have artificial intelligence demand centers or data centers driving demand, paired with green shoots in manufacturing.

Brian Piertangelo [00:14:58]

So let's talk specifically about that. Are the artificial intelligence data centers responsible for the current price increases in your mind?

Michael Bove [00:15:05]

The short answer is to some degree, but not entirely. Really, it's complex. If we look at an analysis from 2019 to 2022 to 2025, in several large markets in the US in terms of power markets, prices have actually moved severely or pretty substantially higher on flat demand. And what we've seen is that grid operators are not currently prepared for sudden demand spikes, but actually the mix of power production and generation has been at a higher cost over time. So demand, while power prices are moving higher now, it's not entirely demand-driven at this point.

Brian Pietrangelo [00:15:45]

Great, and so putting all that together, what do you think our investors should know about the future state of electricity prices?

Michael Bove [00:15:52]

Unfortunately, there's no easy fix in the short term, right? There are talks about power caps, power price caps, but these would only bring power shortages and outages and would not incentivize power generation companies to bring power to the grid. Additionally, it is hard to bring power generation to the grid given multi-year backlogs. Like the leading U.S. power generation equipment manufacturer has backlogs out through 2030. So really, there's no short-term fix here. And I would say that investors and consumers should expect higher power prices in the near to medium term.

Brian Pietrangelo [00:16:27]

Great, thanks. Michael, any other thing you want our audience to know in terms of just general knowledge about what's going on in the industry?

Michael Bove [00:16:34]

I would, one final thought is it's very complex. You know, it's not so easy as attaching a generator to your house. There is a complicated mix of power and voltages and and that these levels have to be maintained at all times in a very interconnected grid. So it's a very complex problem and it's not, there's no easy fix, like I said earlier.

Brian Pietrangelo [00:16:56]

Great. Well, maybe we'll have you back on in a couple, six months from now to give us an update. There's a lot of rumors going around about Microsoft buying Three Mile Island and regeneration of nuclear energy as a source for data centers. So we'll want to get your take on that. Michael, thanks for joining with the podcast today.

Michael Bove [00:17:10]

Thanks, Brian.

Brian Pietrangelo [00:17:11]

Well, thank you for the conversation today. George, Rajeev, and Michael, we appreciate your insights. And as we head into the weekend, a quick reminder that Monday is the celebration of the national holiday honoring the works and the initiatives of Dr. Martin Luther King Jr. and everything that he was able to support and accomplish in his life. Well, thanks to our listeners for joining us today. Be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results, and we know your financial situation is personal to you. So reach out to your relationship manager, portfolio strategist, or financial advisor for more information, and we'll catch up until next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

Disclosures [00:18:00]

January 9, 2026

Brian Pietrangelo [00:00:00]

Welcome to the Key Wealth Matters Weekly podcast, where we casually ramble on about important topics, including the markets, the economy, human ingenuity, and almost anything under the sun, giving you the keys to open doors in the world of investing. Today is Friday, January 9th, 2026. I’m Brian Pietrangelo, and welcome to the podcast. I would like to welcome all of our listeners back to the podcast and wish a Happy New Year, as this is our first podcast of the year after being off for the past three weeks for the holidays. So welcome back, everybody. Happy New Year. With that, I would like to introduce our panel of investing experts here to share their insights on this week's market activity and more. George Mateyo, Chief Investment Officer, Steve Hoedt, Head of Equities, and Rajeev Sharma, Head of Fixed Income. As a reminder, a lot of great content is available on key.com/wealthinsights, including updates from our Wealth Institute on many different subjects and especially our Key Questions Article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor.

Taking a look at this week's market and economic activity, we're going to give you a summary of the updates in two parts. Part 1 is some of the data that came out in December between our last podcast in the middle of December and today. So we can bring you up to speed and then Part 2, what are the economic releases and market news for this past week?

Starting with Part 1, we've got 3 updates for you since our last conversation in the middle of December. As a reminder, #1, the Federal Open Market Committee, did cut rates by 25 basis points, taking the Fed funds rate to 3.5% to 3.75% as the range. That caps off 3 consecutive months of 25 basis point decreases for a total of 75 basis points of decreases in the Fed funds rate during the calendar year of 2025. Back on the 10th of December, the Fed also provided their summary of economic projections, which are in a few key areas. One, they upgraded a little bit the real GDP estimate for the end of the year, as well as for 2026. Unemployment rate was basically the same. Inflation was receding. So overall some pretty good news in terms of their projections, but right now they're just projections. Most importantly on their projection for their own committee, they estimated that there would be only one rate cut in 2026 of 25 basis points. We'll have more discussion with that with Rajeev later on in the podcast.

And second, the first estimate for the third quarter of 2025, real GDP from the Bureau of Economic Analysis as it was delayed by the government shutdown, only came out from December 23rd, which was delayed quite a bit. The report showed some pretty strong numbers that were 4.3% on the quarter basis for the third quarter of 2025, which was above the prior two quarters. And so we saw some significant growth a little bit tempered by net exports, but also showed some increases in consumer spending as it is the lion's share of GDP in the United States. So overall a pretty healthy read on the GDP number. Now the revisions will also be delayed due to the government shutdown as we begin to catch up things on the release schedule as we move into 2026, but again, we'll give you that update when we have it.

And third we also got the consumer price index measure of inflation report that came out back on December 18th. Now a couple of things to note that are very important. First and foremost, the October read was not collected by the Bureau of Labor Statistics due to the government shutdown, so that's going to skew the numbers a little bit. And then the November numbers were really a two month number rather than a one month number, but it was a .2% increase on a month over month basis. So a little bit decent, but again taking with a grain of salt. In addition, what that means is for the year over year calculations, the November 2025 number came in at 2.7% inflation for all items and 2.6% for core inflation, which excludes food and energy. Now on a surface level, this is good news because it's down from the September number at 3%. But again, we caution in terms of the fact that that might have been some imputed 0 numbers. For October, so we'll have to continue to look at these numbers as we get the actual December numbers in January.

Now we move to part 2 of the economic update were the releases we want to share with you from this prior week. We've got four of them for you and then we've got 1 update on the overall geopolitical situation. First up, the weekly initial unemployment claims remain very healthy at a 208,000 level for the week ending January 3rd, so this has remained very low for about now 12 to 24 months in a range that has gone up and down a little bit, but has basically remained stable and not increased to provide a worry. And second, the job openings report showed that for the November month, job openings were down a little bit from 7.4 million in October to 7.1 million in November. And 3rd we have the new non-farm payroll report that came out just this morning at 8:30 which shows a couple of different items we're going to give you 3 months of data because of some of the delay again in the government shutdown. So we go all the way back to October where there was a minus or a decline of 173,000 jobs on the new non-farm payroll. Report. Now we give you some additional information on that data point where about 150 or so thousand of that was related to government workers and the planned or resignations for the dose campaign in the federal government. So that certainly offsets some of the gains in the private sector, again to be a net -173,000 jobs. In November that rebounded to a +56,000 jobs. And now just this morning for December, the report showed 50,000 new non-farm payrolls that were created. So clearly, at least in this three-month span, a little bit more slowing in the numbers than we have seen in the past 12 months. And 4th also as an offset to some of the slowing job numbers, there was a significant increase in productivity of labor workers. So ultimately, the third quarter 2025 report showed that productivity in labor increased 4.9% in the third quarter, which was a significant jump. And a pretty high number overall. So productivity seems to be going very well.

And finally, outside of economic data, we've got some geopolitical updates as we started the week with the news with the Venezuela situation and the capture of Nicolas Maduro and the offset from that. So we'll get George's take on that in particular as well as economic data plus our conversations with Steve and Rajeev. So George, first to you, you're first up on the opportunity to share with our audience. Your take on the Venezuela situation and the overall economic data we just heard, George.

George Mateyo [00:07:04]

Well, to say that we were surprised, I guess, about the news that transpired over the last week or so in Venezuela. Brian would probably be an understatement. I think many people, us included, or at least myself included. It's not too surprising to see some action being taken place, but the force with which the action was levied was really quite stunning and maybe a little bit surprising as I said. But to kind of put things in the context, I think it's important to remember a few things, one of which is the. Fact that oil is a big part of the Venezuelan economy represents something like 70% of their entire exports. So you know 3/4 roughly of their exports is tied to oil, which is a pretty big deal. And I think oil is at the center of this, this ongoing discussion. To widen the lens a bit further, though, Venezuelan oil only represents about 1% of the entire global output, so they're not really at the current level. Anyway, not really. A big driver of overall energy prices, but they do have a ton of oil in reserve and essentially that is I think they're the largest country in the country that has the largest amount of oil reserves. In the world, which is pretty astonishing. So I think the oil debate is probably the the issue here. We'll have to kind of think about that. What that looks like over time. It's not going to mean probably something in the near term in the sense that much of the oil reserves probably are actually hard to reach in the sense that there's a lot of excess capacity and a lot of under investment that's kind of come along with the infrastructure inside Venezuelan economy. That you get that oil moving, so to some extent, I think this is just the longer-term situation. But in the near term, I think this is more of a political event than any economic events. And that's one thing that we've probably seen the markets this week in the sense that there hasn't been too much movement in the overall energy complex. We haven't seen, you know, jumps in, in, in, in inflation indicators and so forth. And the overall stock market is certainly taking its stride with a pretty good start to the year. So again, I think this is the longer term. Maybe economic event, but in the short term this is more of a political event than anything else. Steve, I know you've paid close attention to the energy markets. I'm sure that you thought so. How did you kind of process what we saw in the last week or so?

Steve Hoedt [00:09:04]

Yeah, I would say, George, maybe the time caught everyone a little bit off guard, but I have to say it feels to me that the wheels were put in motion for this when Venezuela threatened its neighbor Guyana year or so ago when they made claims and what they call the Essequibo region. But what the Guineese. Are, it's part part of Guyana and the offshore area and? You know, you look at that, that's the most important new discovery in the world in terms of oil field put into production in the last 30 years, it's run by ExxonMobil. And when Venezuela basically threatened to to, to go in and take that by force. In my view, the clock. Just taking on how long the US would tolerate bad actor behavior from from Maduro, so you know that that kind of put things in motion. Then he did his little dance and then triggered, triggered, triggered Trump, apparently. But you know, on a serious note, when you look at the oil market dynamics, look, this is not going to impact things for a long time. And there are a couple reasons for that. Number one, the under investment in the infrastructure. There is one thing, but #2 the oil there is not high quality, it's dirty heavy crude. It's not the type of crude that you would go for unless you really need to go in that direction. It's very similar to the oil sands crude out of Alberta with the caveat that it's a little bit cheaper to produce than Albertan oil sands oil because it's hotter in Venezuela than it is in Canada. But at the end of the day, there are better fields and better resources to develop globally. So, you know when the administration talks about the oil companies are going to be willing to invest billions and billions and billions. Do this to to bring this thing back online. I really question that because you wouldn't invest there until you have. Other projects that rise, or you have to pass an internal rate of return hurdle to to make the investment useful. And I don't know that in the current global oil market that those are assets that that that the oil companies would really be interested in developing quite honestly.

George Mateyo [00:11:48]

Well, that's great Steve. I appreciate all that context and I think meanwhile, we've started to see some normalization with respect to economic data, of course. So the other thing that really kind of defined, I think the quarter that just ended was the government shutdown that we talked a lot about on this podcast and other places too and to some extent I think that really cloudy the the. Economic picture. And now we're starting to kind of see that fog lift a little bit and what we've seen kind of thus far anyway is probably more the same in the sense that the overall inflation story is moderating. I wouldn't say it's cooling to the point of that, the that target, but it's getting closer and it's kind of moving that direction. We'll see if that plays out. I think there's kind of some question marks around that. We've also seen the consumer, I would say, retrenched, but they're kind of moderating their behavior too. It seemed like Christmas was OK. I'd say based on some indicators. But overall, spending is still pretty healthy. Definitely the corporate sector, and particularly as relates to AI, which we can maybe talk about it at a different time. That's a whole nother subject. But regime, I think the big the big question saying from the Fed is how the consumer processing their job prospects and specifically we got numbers this morning that suggest the labor markets still in okay shape right now but it's certainly softening quite materially. The unemployment rate actually moved lower, which maybe because kind of further credence. The Fed's not doing anything when they get together this month, but again, we still have to be mindful that the overall market is slowing. Quite notably, we've seen that in other reports as well, but you kind of put all this in your crystal ball. How do you think that is processing the implement the fluent situation and what they're thinking about respected interest rates as we move into the new year?

Rajeev Sharma [00:13:21]

Well that’s a good question, George. I mean the unemployment rate falling for December and that two more than expected. We saw Treasury yields immediately react moving higher in yields specifically as non-farm payrolls rose 50,000 and less than economics economists had forecast, and traders all but gave up on the fact that we're going to get a rate cut this month. Those odds are already pretty low, and after this labor report came out, nobody's really expecting anything at the January 28th FMC meeting. For a fed rate cut now, so now the market has gravitated towards two rate cuts for 2026, with the first one coming sometime around mid year most likely June. And job data was the first clean read that we got on the labor picture after. As you mentioned, the government shutdown, which was six weeks. So now we finally have a fresh jobs report. We could start seeing changes in those two rate cut expectations by the market. What that would depend on would be on how labor market continues to perform over the next several months. Then you also have inflation. That is cooling, but still above the feds 2% target goal. So again, just like in the past, just like we saw before, data is going to be the key of how the Fed is going to move forward with their rate cutting cycle. It will likely be, in my opinion a stop-start approach for rate cuts. The other factor that's affecting this is the fact that many people, many investors, feel that we're pretty close to the neutral rate. So even if we do get rate cuts, we're probably closer to well by the end of this year, we'll be closer to the end of a rate cutting cycle than the beginning of 1. So where do we go after that? I think that's also in the minds of a lot of investors. The other factor, the other factor that's really affecting the treasury markets right now is that investors are reducing their long positions and they're going short in treasuries. And again, this is a result of these renewed geopolitical uncertainties. Now generally in the past, whenever you've had some kind of geopolitical uncertainty, treasures have been viewed as safety haven asset and you saw money pouring into treasuries. We didn't see that on the Venezuelan news this time around. It wasn't that much of a factor as far as why treasuries yields were going lower in the first couple of days of the trading year, but we don't see those foreign buyers. We want to see the latest foreign buyers reports last couple of reports, they were still pretty firm on their levels of buying treasuries. It's going to be very important to see if they continue to be that way. Specifically, European buyers, they started slowing down their purchases of treasuries and some import to see if that continues as well. And then you have other factors in in fixed income that are affecting headlines and and the most recent one being Fannie and Freddie being told to buy $200 billion in mortgage bonds. This move is a targeted move that is an attempt to really push mortgage rates lower by boosting demand for mortgage-backed securities and many view this as an aggressive intervention. And the question is how far the GSE's should be able to go to impact housing finance. So again, we haven't seen the scale of intervention since 2008 =, And it's a directive that's coming directly from President Trump. So, this may again start to bring in the question of the independence or how we look at monetary policy going forward. I look at how we're how things are being affected or impacted by directives from from the White House. Again, this may deliver some short term relief. But again, it asks the question where is that line between monetary and housing policy?

George Mateyo [00:16:40]

Rajeev, you're right to point that out. And I think what it signals to me is just as you mentioned a broader sentiment that the Oval Office is trying to really dictate policy in a pretty overt way. And of course, you know, every administration has their own view on how they want to build their sticks, so to speak or kind of pull the lever of the economy. But as we talked about and we mentioned this and I think our year end outlook call your head outlook call I should say is the fact that affordability has become a real lightning rod issue and that's just maybe a covert for inflation or some other things. Well, I think Brian, maybe experienced some of that during his travels recently when people asking him about inflation too and prices. And again, this notion that the White House is trying to engineer mortgage rates or maybe manipulate the housing market to some extent says to me that again, they're really concerned about inflation and affordability as a domestic issue. So I think that we just have to kind of keep that in mind. I think it does maybe lend some support to this notion that inflation will probably be somewhat stickier. Irrespective of what happens at some of these indicators that then watches like the inflation, the inflation rate itself. So I don't know, Steve, if you've got a view on that, I think. But from our perspective, I think it makes sense to remind people that positioning in this purple position, this, this environment probably needs to be again be both based on diversification #1, but also what you've done with your portfolio, Steve is kind of tilt a little bit more towards cyclicality and I think that's also proven to be somewhat beneficial in this of this year. Any thoughts on how that actually enters to your calculus around portfolio positioning as we think about 2026.

Steve Hoedt [00:18:12]

Yeah, George, you know, when you look at the way. That the year has started out, I mean solid beginning of the year, right up really nicely through the 1st 5 days. And when you look at the things that have been working versus the things that have been not working, we we've seen the Mag 7 you know not out of the gate in Ripple or in fashion not getting crushed or anything but the cyclicals have been doing very well and it seems that the market is coming around to our point of view which is that the quote unquote run it hot scenario seems to be in play for the for the foreseeable future and you know, this is what we kind of talked about in our outlook the caveat and the reason why we continue to talk about diversification and owning other assets instead of just saying you know, push all your chips to the center of the table for the on on equities is that you know the run at hot scenario has inflationary implications and when you get to the middle of the year with the new Fed chair. I don't know that you're going to get the market reacting to what happens with a run at hot scenario in a bullish fashion, so. You know all things right now point to earnings having a good year because of all these kind of growth positive initiatives that we're talking about, but it does introduce some additional uncertainty, a little bit further down the road and that that's the thing that kind of gives us pause and we're very happy to see the market doing well out of the gate. But I think you just got to take it with a little bit of a grain of salt.

Brian Pietrangelo [00:20:05]

Well, Steve, you mentioned the new Fed chair, Rajeev, what are your thoughts on the updated stats of probabilities or possibilities in a new Fed chair?

Rajeev Sharma [00:20:13]

Stats are saying it's probably be somebody named Kevin, but yeah, we do have the 2 front runners, Kevin Hassett & Kevin Washington. I think that what's going to be very important is, you know, the perception really is again, back to what will be central bank independence and what will it look like? What would the Fed look like after Fed Chair Powell leaves? I think what's going to be very important. There are other rotations within the Fed. Obviously the chair doesn't have the final say. It has to be a vote. So those are the voting Members that will be there as well. But I think what's really important right now is that the market understands that whoever is going to be in that position as Fed Chair, it's going to be handpicked by President Trump, and we all know that President Trump wants more rate cuts, wants to really start moving monetary policy to more of a cutting cycle. So many feel that it will be a more aggressive Fed going forward. So I do think right now Hassett’s got the lead right now as far as the polls go.

Brian Pietrangelo [00:21:09]

Thanks, Rajeev. And we'll finish up today's podcast as the first of the New Year with George as his overall arching comments for our listeners. George, any thoughts?

George Mateyo [00:21:19]

Well, to some extent, we’ve kind of covered these already, Brian, but I think just in terms of how we're thinking about your head, I think it is important again to reiterate, despite all of the consternation and maybe concern things we think, number one, that the business expansion is going to continue, meaning the odds for a recession is pretty low right now and that's going to be good for overall top line revenue growth that's going to actually be good for earnings as well earnings furthermore probably have some support from productivity gains, which is good for margins and that all leads to probably, as Steve mentioned, a pretty good recipe for stock prices. The converse of that I guess, is the fact that the valuations coming this year as they were last year this time frankly are still quite extended. So we're not going to likely see a whole lot of support this year from valuations. And I think over the past 12 months with the market up some 15-16%. Most of that too is based on stronger earnings as opposed to valuation. So in other words. If we start to see some deterioration in the urns or productivity story, that could be somewhat problematic for stock prices and maybe Steve pointing out, inflation might be one of those things that causes that to shift a little bit, but nonetheless again as I said #1, we still think the overall odds of a recession is pretty low. #2 the other thing we want to emphasize is that I think the overall narrative around investing in AI is shifting, it's not falling apart, but I think it's becoming more discerning. As Steve you pointed out, it was one kind of these moments where we seem kind of a rightly tide with many boats and now I think there's probably more discernment between the winners and the losers and that just again creates more opportunities but also creates some level of risk. And frankly there are more opportunities in other parts of the market that we're seeing attractive valuations. And then thirdly, the thing that I think we again, we talked about this too is that diversification probably didn't matter much from 2021 to 2024 in this to some extent really we saw really the market being levitated and supported by just the handful of stocks. And actually last year was a year where diversification really worked. If you have exposure towards international markets. If you have exposure to bonds, if you have exposure to real assets, your portfolio would have been better off than just owning that handful of stocks. And I think that's still somewhat underappreciated, Brian. So I think in our view, again being diversified is probably a really preferred winning strategy for the long run. And I know that sounds a little bit kind of like a cliche, but I think it's very true. And that's one thing that we're going to continue. To emphasize, as we think about the year ahead.

Brian Pietrangelo [00:23:44]

Well, thanks for the conversation today, George, Steve and Rajeev. We appreciate your insights and thanks to our listeners for joining us today. Be sure to subscribe to the key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results, and we know your financial situation is personal to you, so reach out to your relationship manager, portfolio strategist or financial advisor For more information and we'll catch up with you next week to see how the world and the markets have changed and provide those keys to help you navigate your financial journey.

Disclosures [00:24:19]

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