Fed signals higher yields and stronger US dollar in 2025 with less aggressive rate cuts

From Investing.com: 2024-12-24 05:52:00

The Fed will not cut rates as much as expected, signaling uncertainty about future interest rate paths given the strong economy. Inflation is projected to rise to 2.5% by the end of 2025, potentially impacted by trade wars. The Fed plans to reduce the rate paid to lenders using the overnight reverse repurchase facility. A hawkish Fed, amidst dovish global central banks, may boost the U.S. dollar. Consumer spending could moderate if the job market cools, but pent-up demand for capital investment may provide support.

The recent FOMC meeting revealed a less aggressive rate-cutting cycle. Inflation is supported by a strong economy, prompting the Fed to project fewer rate cuts next year. Businesses are showing a strong appetite for R&D investments, anticipating an increase in capital spending. The percentage of businesses planning to increase capital spending is at the highest level since mid-2021, reflecting optimism in both the corporate and consumer sectors.

LPL’s Strategic and Tactical Asset Allocation Committee maintains a neutral stance on equities, with a preference for the U.S. market. Short-term weakness may occur as sentiment remains stretched and geopolitical threats escalate. Equities may need to adjust to a potentially slower and shallower Fed rate-cutting cycle.



Read more at Investing.com: Fed’s Slower Rate-Cutting Cycle Signals Higher Yields, Stronger US Dollar in 2025