As anticipated, the Fed lowered interest rates by a quarter point

The Federal Reserve, in a move that was largely anticipated, lowered interest rates by a quarter point today, bringing the target Fed Funds rate range to 4.25%-4.5%.

 Chairman Powell’s comments underscored the Federal Reserve’s dual mandate of managing inflation and maximum employment, reflecting a more neutral policy stance. He emphasized the Committee’s flexibility in adjusting policy as needed and was clear about moving slowly with their actions.

The Committee dropped the expectation on cuts from 4 to 2 cuts for 2025, a decision influenced by the economic conditions in late 2024, particularly the persistence of higher prices. The Chairman remains confident that the Committee is seeing considerable progress on the dual mandate, and the overall picture of why inflation should be going down is still intact. He said, “We are still unwinding from these large shocks, and some have not been felt till recently, like insurance costs.” Powell added: “As for additional cuts, we’re going to be looking for further progress on inflation and continued strength in the labor market. As long as these markets are solid, we can consider further cuts.”

Acting NYS Tax Commissioner Amanda Hiller has cautioned the state about the potential impact of the 2017 federal tax laws set to expire in 2025. She anticipates significant changes, including higher standard deductions, lower tax rates, and a more extensive estate tax exemption, to be reversed. If these changes come into effect, they could potentially lead to some uncertainty in the municipal bond market.

 Upcoming Treasury regulations and IRS rules may have a greater impact on corporate behavior and shareholder returns than new tax laws. While the 1% share buyback tax has proven weak—raising only about $2 billion annually—Republicans may keep it or slightly increase it to justify extending Trump-era tax cuts. On the crypto front, Congress could treat taking rewards as taxable dividends in 2025 to generate revenue. This move would be similar to how legalizing other industries, such as marijuana and sports betting, led to taxation. Meanwhile, expiring exemptions for equity-derivative distributions could lead to higher taxes in 2027, with the Treasury holding significant power over rulemaking in areas like M&A and transfer pricing. Finally, lingering questions from a 2024 Supreme Court decision on offshore income taxation could leave room for future dividend tax chaos, particularly around unrealized gains. While this does not directly impact the municipal bond market, it does impact investor behavior and their need to shelter income from taxes, making Muni Bonds more attractive.

Texas Governor Greg Abbott has big plans for the state—he’s predicting Texas will soon surpass France to become the world’s seventh-largest economy. Abbott credits booming business investment and President-elect Trump’s promise to cut federal regulations, especially on oil and gas, as key drivers of this growth. While the claim might be a little premature—Texas’s $2.6 trillion economy still lags France’s $3 trillion—Abbott is banking on Texas’s momentum. Since he took office in 2015, the state has seen major growth as people and businesses flock to Texas. Oil and gas remain central to the economy, and Abbott says Trump’s plans to roll back Environmental Protection Agency rules will unleash even more energy sector growth.

Abbott also points to Texas’s business-friendly policies, like the ban on income and wealth taxes and new business, as reasons for the state’s success. The recent moves of Tesla and SpaceX to Texas serve as a testament to the state’s appeal. While there are risks, such as trade tariffs and tighter immigration policies, the overall business environment in Texas remains promising.