Fed cuts rates, starts buying bills

The Federal Reserve cut the federal funds rate by 25 basis points to 3.50%–3.75% at its December meeting, marking the third reduction of 2025. Policymakers emphasized that additional cuts will be data-dependent and likely modest, resisting market pressure for a rapid easing cycle. Alongside the rate cut, the Fed announced it will begin monthly purchases of short-dated U.S. Treasury bills (about $40 billion per month starting December 12) to manage reserve levels and support money-market liquidity. The purchases are part of a broader Reserve Management Purchases (RMP) program designed to keep reserve balances “ample” amid a seasonal surge in non-reserve liabilities and to help stabilize funding conditions that had tightened as the balance sheet shrank.

• While the cut was widely expected, most anticipated a “hawkish” cut, meaning they would cut 25bps but signal that they will pause
• Chairman Powell did a good job of avoiding giving off this impression, and the market reaction was positive
• The beginning of short-term bond buying brought back concerns about QE/money printing
• The Fed was quick to elaborate that this was “seasonal” buying to keep the short end of the market stable as we close out the year
• All in all, the risk that the Fed is too hawkish is off the table in the near term

Oracle beats earnings expectations, stock sells off

Oracle’s financial results this week featured an earnings beat and 34% cloud revenue growth, but shares sold off sharply because the top-line missed consensus and the outlook raised execution concerns. Total revenue of roughly $16.1 billion fell short of expectations, undercutting confidence in near-term demand momentum. The company also boosted capital expenditures significantly, targeting ~$50 billion annually to build out cloud and AI infrastructure, which pressured free cash flow and magnified leverage concerns given Oracle’s elevated debt load. Much of the earnings strength was due to a one-off gain from selling Oracle’s Ampere stake, which investors discounted when thinking about sustainable earnings power. Market skepticism was amplified by reports of data-center build delays and ongoing AI infrastructure competition, even though Oracle pushed back against some of those claims.

• Last quarter, Oracle’s announcement of a deal with OpenAI added a staggering ~$300bn of market value
• After this week’s earnings announcement, the stock is now trading below the levels pre-dating the announcement
• This speaks to how much markets get caught up in the hype of the AI boom, and how the reality may be quite different
• There is a new narrative emerging that even though there may be an end demand for all these data centers, we just do not have the electricity to power them
• This may emerge as the bottleneck as companies try to meet the demand
• The rumor that Oracle was delaying one of the data centers from 2027 to 2028 is likely related to this (although the company was quick to deny this)
• If this is indeed the case, market expectations related to the AI build may be too rosy

Disney ties up with OpenAI

Disney announced a $1 billion equity investment in OpenAI alongside a three-year licensing deal that gives OpenAI access to more than 200 Disney, Marvel, Pixar, and Star Wars characters on its generative AI video platform Sora. Under the agreement, users will be able to create short, prompt-based AI videos featuring these iconic assets, and curated fan-inspired content may be made available on Disney+. Disney will also integrate OpenAI technology, including ChatGPT APIs, into its internal tools and Disney+ experiences as a major customer. The deal explicitly excludes talent likenesses or voices, addressing concerns about creative rights, and comes with a shared commitment to responsible AI use and creator protections.

• Content owners and creators like Disney have been struggling with how to deal with generative AI
• A strategic licensing deal allowing creators on Sora to use their IP is an interesting development
• OpenAI becomes the only LLM platform where users can create using Disney characters
• For Disney, this is a way to avoid fighting over IP rights, and creates a new way to build on the relationship with its fans
• This shapes entertainment’s next frontiers and positions Disney as an AI innovation feeder, not just a content library owner

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