Finance
Trading Day: Tech slumps, oil spikes
Published by Global Banking & Finance Review®
Posted on December 17, 2025
7 min readLast updated: January 20, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on December 17, 2025
7 min readLast updated: January 20, 2026
Tech stocks fell while oil prices rose due to AI trade concerns and a Venezuela blockade. Fed policy may shift focus to 'U-star' unemployment.
ORLANDO, Florida, Dec 17 (Reuters) - U.S. shares sank on Wednesday, with tech hit by renewed worries over the AI trade, while Washington's blockade of all sanctioned oil tankers entering and leaving Venezuela lifted oil prices from their five-year lows.
More on that below. In my column today I look at so-called 'U-star', the theoretical, natural rate of unemployment that neither spurs nor slows inflation. It could influence Fed officials' thinking in the coming months. A lot.
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
1. Waller says Fed policy still in restrictive territory,sees room to cut rates 2. Investment herd got it mostly right a year ago: MikeDolan 3. How China built its ‘Manhattan Project’ to rival theWest in AI chips 4. Warner Bros Discovery board rejects rival bid fromParamount 5. Trump orders 'blockade' of sanctioned oil tankersleaving, entering VenezuelaToday's Key Market Moves
* STOCKS: Wall Street in the red, Dow -0.5%, Nasdaq -1.8%.Solid gains in Asia: Shanghai +1.2%, Kospi +2%; Europe mixed, asUK outperforms on rate cut hopes. * SECTORS/SHARES: U.S. tech -2%, energy +2%. Philadelphiasemiconductor index -4%. GE Vernova -10%; Oracle, Palantir,Super Micro Computer all -5.5%. * FX: Dollar up broadly, outperforms vs JPY, GBP and AUDin G10 FX space. * BONDS: 10-year JGB yield highest since 2007 at 1.98%ahead of BOJ decision. U.S. yields barely move. * COMMODITIES/METALS: Oil rebounds 2%, silver +4% to newhigh above $66/oz.Today's Talking Points
* Fed chatter, musical Chairs
Speculation over who U.S. President Donald Trump will pick to replace Fed Chair Jerome Powell is heating up, and it appears to be a three-way race between Kevins Hassett and Warsh, and current Fed Governor Christopher Waller.
Trump and Treasury Secretary Scott Bessent insist the successful candidate will come under no political pressure. But investors are skeptical. Trump, who wants interest rates at 1% next year "or maybe lower", also wants to be consulted on policy decisions. How independent will the new Fed chair really be?
* AI debt jitters
The murky, entangled web of financing between tech firms for big AI projects has been unnerving investors for months, and on Wednesday they got another dose of the jitters after a $10 billion agreement between alternative asset manager Blue Owl and Oracle broke down.
Tech giant Oracle is heavily indebted and its shares have slumped nearly 50% since September. The worry is Oracle is overleveraged and will struggle to make a return on its huge capex investments. The same goes for others, and the bar for allaying those fears appears to be getting higher.
* Venezuela, blockades, and oil
Global oil prices this week sank to their lowest in nearly five years, weighed down by worries over demand - especially from China - and potential signs of a Russia-Ukraine peace deal. Trump may have just put a floor under them.
His complete blockade of all sanctioned oil tankers entering and leaving Venezuela could tighten crude supply and - leaving aside questions around the legalities of the blockade - it also raises geopolitical tensions.
Move over 'R-star', puzzling U.S. jobs data shines light on 'U-star'
There is much discussion in U.S. economic circles around "R-star", the theoretical rate of interest that neither spurs nor crimps economic activity. But Federal Reserve officials could soon shift their focus to "U-star".
That's the similarly theoretical rate of unemployment that neither accelerates nor slows inflation, also known as "NAIRU", or the non-accelerating inflation rate of unemployment. It is likely to influence the Fed's thinking significantly in the months ahead as policymakers attempt to make sense of the head-scratching employment landscape.
Figures on Tuesday suggest the U.S. labor market continues to deteriorate as year-end approaches, though given the government shutdown, labor supply quirks, data collection issues and other technical distortions, this data comes with a major health warning.
Still, the jobs market is sputtering. Hiring is sluggish - the economy may actually be shedding jobs once revisions are factored in - wage growth is slowing and the unemployment rate has climbed to a four-year high of 4.6%.
In theory, a labor market that weak should signal softening economic demand and slowing inflation. But in reality, activity is holding up pretty well, and inflation has remained stuck around 3% for two years, outpacing the Fed's 2% target for five years running.
This raises the question of where "U-star" is – or where it should be – and whether further policy easing is warranted. According to the Fed's latest Summary of Economic Projections last week, officials' median estimate of "U-star" is 4.2%, where it has been since June last year.
Yet the unemployment rate is 4.6% and steadily rising. Most Fed officials say uncertainty around the unemployment rate is high, with risks skewed to the upside, especially as slow hiring could quickly morph into outright firing.
So, unemployment is above Fed officials' estimate of "U-star", yet inflation isn't falling. This implies "U-star" may be higher than current models suggest. If so, there's a debate to be had among the 19 rate-setters on the Federal Open Market Committee.
HAWKS VS DOVES DEBATE TO INTENSIFY
The relationship between inflation and unemployment, as measured by the "Phillips curve", is weak. Unemployment a couple of years ago was the lowest in half a century but didn't trigger an inflationary spiral.
Current labor market figures need to be treated with caution too. Halted immigration is weighing on labor supply, and this month's bump in the unemployment rate partly reflects people seeking to reenter the workforce, as well as technical issues around the quality and collection of the survey data.
But despite the mixed signals, if the unemployment rate continues to climb, Fed doves are bound to push harder for another rate cut. The hawks, meanwhile, will be forced to either admit that inflation risks have diminished or argue that the natural rate of unemployment has risen.
The looming prospect of a 5% unemployment rate - above the current U-star projection and median forecasts for the next few years - would certainly generate calls for more easing, even if inflation remains stuck around 3%.
WILL UNEMPLOYMENT ACCELERATE?
The debate among Fed officials could come into sharper focus in the next few months.
The latest CPI figures on Thursday are expected to show that annual core inflation held steady at 3% in November, while headline inflation crept up to 3.1%. That would be the highest since May last year.
All this while labor market slack continues to grow. Job growth has averaged less than 20,000 in the last six months. If you factor in Fed Chair Jerome Powell's estimate that technical modeling issues mean monthly payroll estimates are overcooked by around 60,000, the economy could be losing around 40,000 jobs a month.
While unemployment remains low by historical standards, it is rising, and history shows it can accelerate quickly. At what point will that bear down on inflation? Whether or not that occurs next year may depend largely on where the elusive "U-star" actually sits.
What could move markets tomorrow?
* New Zealand GDP (Q3) * Taiwan interest rate decision * Bank of England interest rate decision * European Central Bank interest rate decision * Norway interest rate decision * Sweden interest rate decision * Mexico interest rate decision * U.S. Treasury auctions $24 billion of 5-year TIPS * U.S. CPI inflation (November) * U.S. Philadelphia Fed business index (December) * U.S. weekly jobless claimsWant to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(By Jamie McGeever; Editing by Nia Williams)
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured by the Consumer Price Index (CPI).
Unemployment refers to the situation when individuals who are capable of working are unable to find a job. It is often expressed as a percentage of the labor force.
The Federal Reserve, often referred to as the Fed, is the central bank of the United States, responsible for monetary policy, regulating banks, and maintaining financial stability.
Tech stocks are shares in companies that operate in the technology sector. They are often characterized by high growth potential and can be more volatile than other sectors.
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