Wall Street ignores the blindness in the data
Goldman Sachs is waving the green flag. Ashok Varadhan, the firm’s co-head of global banking and markets, stood on the trading floor this week and declared a clear path for aggressive rate cuts throughout 2026. The market, desperate for a narrative that justifies the S&P 500’s climb to 6,834.50 as of this afternoon, December 19, 2025, has swallowed it whole. But look closer at the 48 hours of data trailing this optimism. The reality is not a green light; it is a dense fog created by a 43-day government shutdown that has left the Federal Reserve and investors flying blind.
The statistical void of the 43-day shutdown
Numbers do not lie, but they can omit. Yesterday’s November CPI report from the Bureau of Labor Statistics (BLS) printed a headline inflation figure of 2.7%. On the surface, this looks like the cooling the Fed needs to continue its easing cycle. However, the report is a methodological disaster. Because of the federal lapse in appropriations that shuttered agencies for six weeks this autumn, the BLS was unable to collect any survey data for October. Yesterday’s release was forced to interpolate prices on a two-month basis from September to November.
This is not precision; it is guesswork. We are basing 2026 forecasts on a data set that effectively deleted October. When Varadhan points to “softness” in contemporaneous rent measures to justify his optimism, he is ignoring the fact that the volatility of the last 60 days has been smoothed over by statistical averaging. The Fed’s decision on December 10 to cut the funds rate to 3.50%–3.75% was described by many as a “hawkish cut” specifically because Chair Powell knows the ground beneath him is unstable. If the “true” October inflation spike was masked by this two-month averaging, the Fed is cutting into a hidden fire.
Goldman’s half trillion dollar AI gamble
The bull case relies on a specific quartet of tailwinds. Varadhan cites massive AI infrastructure spending, deregulation, a fiscal boost from the recent legislative package, and those anticipated rate cuts. Specifically, Goldman is betting on nearly $500 billion in AI infrastructure spend in 2026. This is where the skepticism must kick in. A half-trillion-dollar capital expenditure boom is not a disinflationary event. It is a massive injection of liquidity into a labor market where the unemployment rate has already ticked up to 4.6%.
We are seeing a divergence between the “Holy Trinity” of tailwinds and the reality of the yield curve. Today, the 10-year Treasury yield finished at 4.16%, while the 2-year note ended at 3.48%. This spread of 68 basis points is narrowing, but it reflects a bond market that is starting to price in a terminal rate much higher than the Fed’s dot plot suggests. If the AI spending boom triggers a secondary inflation wave, the “green light” will turn red faster than a New York minute.
Market Action for the Week Ending December 19, 2025
The following table tracks the specific price action and yield movements in the 48 hours following the messy CPI release and Varadhan’s optimistic projections.
| Date (Dec 2025) | S&P 500 Close | 10-Year Yield | 2-Year Yield | Spread (10Y-2Y) |
|---|---|---|---|---|
| Dec 17 | 6,721.43 | 4.22% | 3.55% | 0.67% |
| Dec 18 | 6,774.76 | 4.19% | 3.53% | 0.66% |
| Dec 19 | 6,834.50 | 4.16% | 3.48% | 0.68% |
The mechanism of the deregulation trap
Beyond the macro figures, the technical mechanism of the proposed deregulation deserves scrutiny. The expectation is that reduced oversight will lower the cost of capital for hyperscalers and regional banks. However, investigative looks into the SEC’s current filing queue show a backlog of complex financial instruments ready to hit the market the moment the ‘green light’ is official. This is not just growth; it is leverage. If the Fed cuts rates while the private sector aggressively re-leverages under a deregulatory regime, we are repeating the 2007-2008 playbook with a different set of acronyms.
Ashok Varadhan’s constructive view assumes that the “initial conditions” of household balance sheets are strong enough to absorb any shocks. But the 4.6% unemployment print suggests that the labor resource buffer is thinning. When immigration policy becomes a tool for shrinking the labor supply—as hinted by the incoming administration’s tough talk—the supply-side boom Goldman is counting on could easily invert into a stagflationary squeeze.
Investors should look past the record highs and the Christmas Eve rally. The 10-2 spread is telling you that the market doesn’t fully buy the Fed’s 2026 dot plot. The real test comes on January 13, 2026. That is the date the BLS will release the first clean, post-shutdown CPI report. Until then, any claim of a “green light” is merely a well-timed marketing pitch from the top of the street.
