The Forecast

Welcome back to The Forecast, where we help you think about the future — from next week to next decade — with predictions and analysis from around the world.

The rapid fall of Bashar al-Assad’s regime in Syria will not be the last unexpected consequence of war in the Middle East, as Ziad Daoud of Bloomberg Economics wrote this week (Terminal subscribers only). Political instability in the region was already high, but “Assad’s fall raises the threats several more notches.”

With that in mind, we’re opening The Forecast with a look at Iran’s next moves. We’ve also got a wonky look at the debate over the neutral rate of interest and a prediction market on those mysterious drones in New Jersey. And don’t miss Bloomberg’s coverage of the impeachment of South Korean president Yoon Suk Yeol. As always, you can let us know what you think by emailing us.

Week Ahead

Monday: Germany’s Bundestag will hold a confidence vote that will likely pave the way for a snap election in February; Nigeria reports CPI and Argentina reports GDP.

Tuesday: Canada’s CPI is forecast to show inflation slowing slightly to 1.9%; the US publishes retail sales data.

Wednesday: The Fed is expected to cut rates a quarter of a point, though Bloomberg Economics’ Anna Wong says it ought to be holding steady.

Thursday: Bank of Japan is likely to leave interest rates unchanged — delaying its next hike to January; rate decisions are also scheduled in the UK, Sweden, Mexico, Norway, the Philippines and Taiwan; Vladimir Putin holds his annual news conference; FedEx, Nike and Accenture report earnings.

Friday: The US reports PCE inflation as well as personal income; deadline for Google to respond to proposed remedies in one of its US antitrust cases.

Iran’s Dangerous Calculus

In his first statement since the ouster of Syria’s Bashar Al-Assad, a key partner for Iran’s regional strategy, Supreme Leader Ayatollah Ali Khamenei said his country is “powerful and strong” and vowed to expand its network of allies.

In reality, Iran’s room to maneuver is narrowing. Its regional proxies are decimated, a decidedly unfriendly US administration is heading toward the White House, and its population is seething under a struggling economy.

Assad’s removal comes after a year of political and military reshuffling in the Middle East set in motion by the Oct. 7 attack on Israel. As Iran seeks to simultaneously rebuild its regional influence and create an opening with the US, the risk of miscalculation is rising.

Khamenei has vowed to rebuild the country’s alliances in the Levant, including Hezbollah in Lebanon and Hamas in Gaza — both of which have been decimated by Israel. Meanwhile, Iran’s President Masoud Pezeshkian, a reformer, has plans to revive negotiations with the US over the defunct 2015 nuclear deal. The idea was hatched before the US reelected Donald Trump.

Restoring the 2015 agreement to limit Iran’s nuclear capabilities — which Trump shredded in his first term — is key to unfettering Iran’s oil-rich and industrialized economy from US sanctions. That would require Trump walking back from his promised “maximum pressure” campaign. As well, Khamenei, likely in his final decade of leadership, would need to allow Pezeshkian to work with an administration hated by many hardliners.

Meanwhile, the International Atomic Energy Agency said last week that Iran abandoned its short-lived pledge to stop enriching uranium to near levels that can be used for a weapon. Tehran is signaling it can ramp up or down its race for a weapon, depending on how Washington behaves.

Trump has vowed he won’t let Iran get nuclear weapons and his foreign policy appointments are generally hawkish (Terminal subscribers only). Where either side draws the line in its posture toward the other remains dangerously unclear.

— Golnar Motevalli, Bloomberg News

Predictions

The “Walmart Recession Signal” — Walmart’s share price divided by the S&P Global Luxury Index — “is now at the highest since the early days of the pandemic.” — Katrina Compoli, Markets Daily, as of Wednesday

“Government borrowing habits pose the biggest danger to world economic stability and recent shifts in market sentiment should serve as a warning, the Bank for International Settlements said.” — Bastian Benrath-Wright, Bloomberg News

“If you’re just getting up to speed on chatbots and copilots, you’re already falling behind. Talk in Silicon Valley now is squarely focused on agents — artificial intelligence that can handle multistep chores like onboarding clients, approving expenses and not just routing but actually responding to customer-service requests, all with minimal human supervision.” — Jo Constantz, Bloomberg News

“If Trump dismantles NOAA’s weather forecasting operations or stops sharing valuable climate feeds, experts say the loss would be felt around the world — but it would be most painful for developing countries that have relied on free US tools and training for decades.” — Lauren Rosenthal and Mary Hui, Bloomberg News

“Alphabet Inc.’s quantum computer needs just five minutes to solve a problem that would take supercomputers around 10 septillion years. Google’s next task: coming up with an actual use for all that theoretical power.” — Jane Lanhee Lee, Bloomberg News

Finally, the economic “turtles and hares” of 2025, courtesy of Businessweek and Bloomberg Economics:

Keep an Eye On

How far can US interest rates fall? That depends on inflation of course, but also on the so-called “neutral rate” of interest, which is the rate level that neither boosts nor slows the economy. For years, it was widely considered to be pretty low. Covid scrambled that — and unleashed a high-stakes and highly theoretical disagreement from Wall Street to Washington.

On bond desks, everyone has an opinion on the neutral rate. It’s 3.3%. No, it’s 4.5%. Actually, it’s 2.4%. The problem is that those estimates are all over the place. That means investors have wildly different takes on whether the Fed’s three-month-old easing cycle is just beginning or getting close to the end.

Fed policymakers' dot plot estimates of the long-run interest rate are rising

Fed policymakers’ estimates of the long-run interest rate — a proxy for the neutral rate — are divided, too. They’re as low as 2.375% and as high as 3.75% — the widest range since the Fed began publishing the figures over a decade ago. Next week the Fed is widely expected to cut the benchmark rate another quarter point. FOMC members will also update their estimates of the long-run rate. Keep an eye on whether the median estimate increases — and whether the range of opinion is narrowing or expanding.

— Liz Capo McCormick and Ye Xie, Bloomberg News

What Are the Chances...

The chance that the US government will say the New Jersey mystery drones are from a foreign country by the end of 2024, according to Polymarket. Forecast as of 5 p.m. ET Saturday. As of this writing Polymarket also gives a 4% chance the drones will have been shot down by the end of Sunday.

Weekend Reads

Citizenship Is Becoming More of a Privilege Than a Right

Syrian Refugees Are Conflicted About Returning Home

As Gen X Nears Retirement, Many Fear They Can’t Afford It — Now or Ever

How a Play About a Bank Explains the Post-Financial Crisis World

Chili Peppers Are Losing Their Heat as the World Gets Warmer

Have a nice Sunday and a productive week.

— Walter Frick and Katherine Bell, Weekend Edition; Golnar Motevalli, Liz Capo McCormick and Ye Xie, Bloomberg News