Good morning. High interest rates and the rising cost of funding were already a top concern for CFOs. Now, that concern could grow following a strong December jobs report—one of the key pieces of data assessed by the Federal Reserve—that has led some economists to predict there will be fewer rate cuts this year, or none.
The Labor Department reported on Jan. 10 that payrolls grew by 256,000 last month, up from 212,000 in November and above the forecast for 155,000. The unemployment rate dipped to 4.1% from 4.2%, also beating expectations.
Due to the stronger-than-expected jobs report, Bank of America economists revised the Fed outlook for this year: “We no longer expect any additional rate cuts,” economists wrote in a report on Monday. “Inflation is stuck above target, with risks skewed to the upside, activity is strong, and the labor market now appears to have stabilized.”
Last week’s blowout jobs report was also a catalyst for a surge in bond yields. Markets responded and the yield on the benchmark 10-year Treasury, which rises as the price of the bond falls, briefly surged above 4.8% Monday morning, its highest level since November 2023, Fortune reported. All of this has left Wall Street to wonder if the Fed will be able to continue its rate-cutting regime in 2025.
Meanwhile, UBS expects that the Fed is unlikely to cut interest rates at its first policy meetings of 2025 but later on. “We expect data in the coming months to show slowing inflation and a softening labor market, allowing the U.S. central bank to start cutting again by the June policy meeting,” according to a UBS chief investment office report.
The December 2024 CPI report, which provides insights into the strength of inflation, is scheduled to be released on Wednesday. The key piece of data the Fed uses to measure inflation is the core Personal Consumption Expenditures (PCE) price index. PCE tracks the prices of goods and services purchased by consumers. PCE inflation increased year over year by 2.4% in November. The PCE data for December will be released on Jan. 31.
The Fed cut interest rates by a quarter-point in December. According to the agency’s forward guidance “dot plot,” the committee’s members penciled in just two quarter-point cuts for 2025, down a full percentage point from their September chart. Fed officials see the fed funds rate falling to 3.9% in 2025. That’s still far from the desired target rate of 2%.
BofA economists assess the risks for the next move by the Fed is skewed toward a hike. “In our view, hikes will be in play if year-over-year core PCE exceeds 3% and long-term inflation expectations become unanchored,” according to the report.
The Fed will continue to cautiously analyze key data sets ahead of its two-day meeting beginning Jan. 28, and use that analysis to make its next move on interest rates.
SherylEstrada
sheryl.estrada@fortune.com
The following sections of CFO Daily were curated by Greg McKenna.
Leaderboard
Kevin Grant was appointed CFO of a.k.a Brands (NYSE: AKA), which owns a portfolio of online fashion stores. He replaces Ciaran Long, who was named the company's chief executive after serving as interim CEO and CFO since March 2023. Grant joined the company in the role of global controller in April 2021. He previously spent seven years in senior finance roles on Walmart’s eCommerce team after 11 years at Ernst & Young.
Robert Langer was appointed EVP, CFO and treasurer of Sphere Entertainment (NYSE: SPHR), the eponymous owner of the Las Vegas entertainment venue, as well as New York regional sports network MSG, effective Jan. 13. Langer previously spent 25 years at The Walt Disney Company, most recently as global leader of enterprise-wide financial planning and corporate strategy. He also served as CFO of several divisions, including ABC television group, consumer products, Disneyland Resort, and global toys. Prior to joining Disney, he was a senior case leader at The Boston Consulting Group.
Big Deal
The prospect of a global trade war remains a big worry for CEOs across the world. The Conference Board, a nonpartisan think tank, surveyed over 500 chief executives primarily from North America, Europe, Asia, and Latin America in November. Thirty-four percent of U.S. CEOs and nearly half of their counterparts in Asia and Europe identified tensions between America, the European Union, and China as a high-impact issue facing their business in 2025.
Meanwhile, 71% of U.S. chief executives plan to alter their supply chains in the next three-to-five years, up from 54% in last year’s survey. Fifty-one percent of American CEOs saw the U.S. national debt and federal deficits as the greatest geopolitical concern facing their business, followed by decoupling or derisking from China.
Going deeper
The devastating wildfires around Los Angeles underline the perils of California’s insurance market. Often, the only option for homeowners is the FAIR Plan, the state’s insurer of last resort. Fortune’s Alicia Adamczyk reports that a prominent watchdog has warned those funds could run dry, which would force all California policy holders to make up the shortfall.
Overheard
“We are at an inflection point in industry where we can significantly enhance our ability to work productively and profitably by harnessing the power of today’s technologies. We know we need our processes to work more efficiently, our machines to work harder, and our people to work smarter—and we have the technology trifecta of the cloud, 5G, and AI that can make it happen.”
— Vimal Kapur, CEO and chairman of Honeywell, wrote in a Fortuneopinion piece about why he believes 2025 will be the year that AI revolutionizes the industrial sector at scale.
