Macro Bites – US Deficit Hits $404B; Fed Officials Signal More Rate Hikes

Just hours before Iran claimed to have hit a U.S. military’s early-warning radar system in Bahrain on Friday, President Trump posted on Truth Social that the U.S. does not need a peace deal with Iran, “We don’t need a deal with Iran. Those days have long since passed. We’ve got their money, Hundreds of Billions of Dollars, and we’ve got their Strait!"  Trump also stated he has instructed Vice President Vance to focus on unearthing “corruption and crime in Democratic-controlled cities and states,” after Democrats took over Congress in the midterm elections.

The U.S. Treasury reported on Thursday that the U.S. started the fiscal ’27 fiscal year with a $404B budget deficit in Oct., a record ​for the month and an increase of $120B (or 42%) y/y.  October outlays came to an Oct. monthly record ​of $773B, up $84B (or 12%) y/y.  However, receipts fell by $35B (or 9%) y/y to $369B, ​due partly to a 39% drop in net customs collections to $19.2B from $31.3B in ’25.  The record October ⁠deficit marks another fiscal setback for Treasury Secretary Scott Bessent just after the Treasury reported a $1.993T fiscal ’26 deficit (largest in 5 years).

Despite tighter sourcing rules introduced in the UAE in ‘23, NGO SwissAid published a new report (Laundered in the Emirates: Why the UAE remains a problematic gold-trading hub) estimating at least 591t of illicit gold (valued at $74B) entered the UAE in ’24, accounting for 42% of the UAE's total gold imports.  Most notably, 453t of unrecorded gold (valued at $56.7B) were smuggled from African nations, rising from 408t in ’22 despite the ’23 restrictions.  Audits of 52 UAE refinery reports showed nearly universal non-compliance with the new restrictions, with only two earning a "fully compliant" rating.  Once processed in Dubai, the gold's origin is scrubbed, and Switzerland remains its primary destination.

Fed watch #1: NY Fed President John Williams [Permanent FOMC Voter] said more rate hikes are likely as the central bank seeks to lower inflation. “We'll need to take actions over time that will ensure that we get inflation back to our 2% goal in a timely manner and on a sustained basis…We still have work to do.”

Fed watch #2: San Francisco Fed President Mary Daly [2027 FOMC Voter] agreed the Fed will likely need to raise rates further. "I think the markets are assisting in making sure that we're bringing inflation down -- but our job is not done…That's why I have said that my bias is to have additional tightening, but exactly how much and exactly when...we have many more pieces of data and information over many, many quarters.

Fed watch #3: Cleveland Fed President Beth Hammack [2026 FOMC Voter] said she does not believe that the US central bank needs to shift to more aggressive interest rate rises to combat stubborn inflation. "My view is that if we go steadily in smaller increments, more frequent, smaller rises, it's easier for businesses and households to manage around that."

AI watch:  Industry insiders are forecasting Nvidia will slow its AI investment strategy following Jensen Huang’s resignation, putting billions of dollars of startup funding and credit guarantees at risk.  Reuters reports interim CEO Colette Kress (and her staff) spent years pushing back against circular financing deals acting as a counterweight to Huang.  Stay tuned…