Is The Fed Almost Finished Cutting Rates? – December 2, 2024



A just-published report updated our global fixed-income strategy, which remains positioned for better economic growth, sticky DM inflation and thus fewer policy rate cuts than has been discounted. The latter has already unwound considerably in the U.S., ironically ever since the Fed first cut its policy rate!

U.S. Treasury yields have started to consolidate after surging since mid-September. This period of calm could persist in the near run, but the fundamental drivers point to higher bond yields in 2025, i.e. above-potential growth and above-target inflation. The 10-year Treasury yield should eventually retest its cyclical high of 5% driven by higher inflation expectations, a greater term premium, and an ongoing upward adjustment in the projected nominal neutral fed funds rate.

We recommend maintaining a pro-growth bias with below benchmark bond duration, overweight inflation protection and corporate bonds, while underweight U.S. government bonds within both fixed-income and multi-asset portfolios. We also have short recommendations on the 10-year U.S. Treasury outright, and on 5-year U.S. Treasurys versus German bonds (and have recently tightened the stops on these profitable positions).





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