The Fed's New Puzzle

Good morning and happy Friday. 

David Solomon, the DJ and CEO of Goldman Sachs, will have them dancing with diamonds on the soles of their shoes. The investment banking giant he leads has promoted 95 executives to partner status this year, adding them to arguably the most exclusive club on Wall Street. It's the largest class since Solomon took over the top job in 2018, and the most overall since 2010, according to a Bloomberg News report.

Perks of the job include a salary floor of nearly $1 million and a share of a partners-only bonus pool. Expectations for this year's Christmas bonus are soaring along with Goldman's profits, which were up 45% in the latest quarter. Downsides include an increased likelihood of being asked to give notes on DJ D-Sol's latest set.

On Thursday, to the surprise of virtually no one, the US Federal Reserve continued its interest rate deescalation with a 25 basis point cut — exactly in line with consensus expectations. 

The next move is less obvious now that a new administration is coming to town touting tariffs, which are likely inflationary.

Cut It Out

In September, Fed officials prescribed a "neutral policy" (i.e., one that neither stimulates nor restricts the economy), and said that they see rates falling to as low as 3.5% by next year; Thursday's cut brought rates down to a range between 4.5% and 4.75%. But likely en route is a new economic policy package of mass deportation, tax cuts, and higher tariffs — which some economists think could spark strong short-term growth at the cost of medium- to long-term inflation. The definition of "neutral" policy may be subject to change. 

Investors in interest rate futures markets have adapted their view, now pricing in rates of 3.6% by 2026, up from predictions of 2.8% in September, according to Citi data seen by The Wall Street Journal. Fed officials in September, for their part, suggested a 50/50 chance of another quarter-point cut in their December meeting; on Thursday, they were far more coy.

For central banks across the world adjusting to a new US regime, the question of what's next is even more complicated:

• The Bank of England also had a crack at the new era Thursday, matching expectations by reducing rates by 25 basis points. Inflation in the UK dipped below 2% in September for the first time since 2021, but the central bank cautioned it could rear its head again, and cast doubt over another cut this year.
• The European Union will likely be slightly different. In a note Thursday, ING noted that "risks to the eurozone growth outlook have clearly shifted to the downside" in the wake of the election, making a 50 basis point cut in December more likely. Meanwhile, in Japan, the yen has weakened against the dollar, meaning rate increases are more likely in the imminent future.

Job Security: Underlying everything is the job security of Fed Chair Jerome Powell and the independence of the institution writ large. Trump has vacillated on Fed independence through his campaign, and, since elevating him to Fed chair in 2018, has frequently criticized Powell — even threatening to remove him, a legally fraught move that no president has ever attempted. A source told CNN Thursday that Trump intends to let Powell serve the remainder of his term, through May 2026. Powell, meanwhile, reminded reporters that his removal is "not permitted under the law."

Written by Brian Boyle

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Is Novo Nordisk being subjected to unrealistic beauty standards? 

The Danish pharma giant and Wegovy maker reported earnings on Wednesday, posting some chunky year-over-year growth and far outperforming its only real rival at the moment, Eli Lilly. The news unsurprisingly caused a pop in the company's share price — but it came crashing back down to earth on Thursday, hitting a nine-month low. The problem? Investors' expectations are just so high, there's no pleasing them.

No Time to Savor Victory

Novo Nordisk's sales of its twin blockbuster drugs — Ozempic (primarily for diabetes) and Wegovy (for obesity) — held strong in its Wednesday earnings, increasing year-over-year by 32% and a whopping 76%, respectively. The Financial Times reported that Novo Nordisk's numbers were broadly in line with what analysts had predicted. That's in stark contrast to Eli Lilly, which last week posted a sales miss that sent shares falling about 8%. News of Novo Nordisk's results also appears to have sent Eli Lilly's shares on another dive: They dropped around 5% on Wednesday. 

But Novo Nordisk didn't get time to rest on its laurels — some analysts think the market is starting to correct following the run-up weight-loss drug companies enjoyed earlier this year:

• "It's a stock that needs to be normalized. At the beginning of the year, there was too much hype around it," Gilles Guibout, head of European equity strategies at AXA Investment Managers in Paris, told Reuters.
• Guibout also said that hedge funds may be playing a role in the fluctuating share price. "Its market has significant potential. However, it's easier to find sellers than buyers for the stock, as everyone already holds plenty of it," Guibout said.

Novo Nordisk and Eli Lilly only have so much time to enjoy their market as a two-horse race. AstraZeneca announced on Monday that an early-stage trial for a weight-loss pill had shown the drug was safe.

Long Convalescence: One pharma giant managed to overcome high expectations. Moderna posted a third-quarter profit on Thursday, and the unlikely knight in shining armor was its new COVID-19 vaccine, which sold in higher volumes than expected. 

Written by Isobel Asher Hamilton

The iconic Edwin Starr counterculture anthem righteously proclaimed war is good for "absolutely nothing." Your AI chatbot begs to differ. 

On Thursday, AI startup Anthropic announced it is teaming up with defense contractors Palantir and Amazon Web Services to get its wares into the highly — highly — lucrative intelligence and military market.

Squabble of the Models

Anthropic was set up in 2021 by a group of former OpenAI employees as a public benefit corporation. On paper, that means the company can develop AI safely to benefit people, rather than focusing solely on maximizing shareholder returns.

That's a slightly different structure than nonprofit OpenAI, which has a for-profit subsidiary and is in talks with California regulators to become a full-blown for-profit entity. The two are, nevertheless, competitors: Anthropic's large language models, named Claude, are up against OpenAI's ChatGPT and Google's Gemini. Anthropic's partnership with Palantir and AWS — which both hold billions of dollars' worth of defense contracts — is another competitive strike, coming months after OpenAI reversed its opposition to "military and warfare" applications, and weeks after it reportedly teamed up with government contractor Carahsoft to hunt for lucrative Pentagon cash. The entry into defense is a potential goldmine, but risks social backlash:

• In recent years, many employees at Google and Microsoft have vociferously protested their bosses' overtures to the defense sector, arguing their AI technologies shouldn't be used for military purposes. Earlier this year, roughly 200 Google DeepMind employees — 5% of staff — signed an open letter calling for an end to all contracts with defense organizations.
• But the hundreds of billions in the defense industry are hard to resist, and companies are piling in: Meta said this week that its Llama models will be open to US intelligence agencies and defense contractors.

Eurotrip: In May, Anthropic launched Claude in Europe. President-elect Donald Trump has promised to cut back military support for NATO members unless they meet pledges to spend 2% or more of GDP on defense: That could open up big contracts on the other side of the pond.

Written by Sean Craig