Morgan Asset Management Global Market Strategist Kerry Craig noted that the Federal Reserve has lowered interest rates by 25 basis points as anticipated. This decision reflects a cautious approach considering uncertainties in political and fiscal strategies. The recent statement closely mirrors that of September, especially in its economic descriptions. The Fed has not disclosed a clear policy direction, reiterating their commitment to data-driven assessments rather than predetermined paths.
Craig highlighted that the Fed is attempting to estimate the position of the neutral rate but appears not in a hurry to reach it, given that core inflation remains above target and the economy continues to demonstrate resilience. Despite the 75 basis points reduction this year, the Fed still views its policy as restrictive. This suggests potential for further easing, yet there remains uncertainty regarding the ultimate target for policy rates and the timing to reach it.
The strategist suggested that unless there are significant upward surprises in inflation and labor market data, another rate cut in December is highly possible. Looking ahead to 2025, factors such as trade and tax policies might complicate the situation by increasing inflation expectations. If the U.S. economy continues to show resilience, the market outlook remains relatively healthy, benefiting stock returns. Additionally, further policy easing could lead bond yields to decline from their currently attractive levels.
