Fed May Resume Rate Hikes 2025

FINANCE
Fed May Resume Rate Hikes 2025

The Federal Reserve may pivot back to raising interest rates in 2025, with a 40% probability according to Torsten Sløk, chief economist at Apollo Global Management. This follows continued economic strength and inflationary pressures linked to policies anticipated from President-elect Donald Trump, including tax cuts, higher tariffs, and immigration restrictions.

The U.S. economy remains robust, with third-quarter GDP growth revised upward to 3.1%, surpassing earlier estimates and maintaining strong momentum into the fourth quarter, according to the Atlanta Fed's GDPNow forecast. These figures exceed the Congressional Budget Office’s long-term growth expectations of 2%, highlighting persistent economic resilience.

Inflation remains above the Federal Reserve’s 2% target, potentially limiting its ability to cut rates further after reducing them by 100 basis points this year to 4.25%-4.50%. Fed officials have raised inflation forecasts without significantly adjusting growth or unemployment projections, signaling limited flexibility for additional rate cuts.

Market analysts, including Ed Yardeni, suggest the so-called neutral rate may now be closer to 4.5%-5.0%, reflecting stronger-than-expected economic growth. If inflation persists and economic momentum continues, the Federal Reserve could find itself resuming rate hikes, reminiscent of the challenges faced in 2022, when rising rates and inflation rattled markets.

FINANCE
Steve Ballmer: Keep Investing Simple

Billionaire Steve Ballmer keeps his investment strategy simple, with over 80% of his portfolio in Microsoft stock. The former Microsoft CEO, who served from 2000 to 2014, attributes his approach to Warren Buffett’s advice: retail investors are better off sticking to index funds rather than trying to outsmart the market. Ballmer acknowledges Microsoft’s exceptional performance, returning an average of 29% annually in recent years compared to the S&P 500’s 13%, largely boosted by the AI boom sparked by Microsoft-backed OpenAI.

Aside from Microsoft, Ballmer holds index funds, focusing primarily on U.S. and European markets, with minimal exposure to private equity or other assets. He also owns the Los Angeles Clippers, purchased for $2 billion in 2014 and now valued at $5.5 billion. Ballmer’s advice to everyday investors? “Keep it simple,” unless you’re willing to become an expert. Studies support this, showing index funds often outperform actively managed ones.

FINANCE
Private Companies Dominate Investor Focus

Companies like OpenAI and SpaceX are staying private longer, raising billions without turning to public markets. This trend has created massive wealth for early investors and employees while excluding retail investors reliant on public avenues like 401(k) accounts. The number of publicly traded companies in the U.S. has dropped from 7,500 in 1997 to under 4,000 today.

Private firms enjoy fewer regulatory hurdles, avoiding activist investors and public scrutiny, while accessing ample funding from institutional investors. SpaceX, valued at $350 billion, and OpenAI, worth $157 billion, highlight the trend of private companies raising massive sums. Over $3 trillion is tied up in private equity firms, with another $5 trillion in venture-backed unicorns.

For retail investors, options to invest in private companies remain limited to accredited individuals or specialized funds like Destiny Tech100. Meanwhile, public markets offer broader access to capital, transparency, and credibility, but for now, private firms dominate.

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.