Pu Lai Shi: The Federal Reserve may pause after cutting interest rates three more times.

After Trump's victory in the election, many economists have revised their expectations for future rate cuts by the Federal Reserve. Blerina Urui, Chief US Economist at T. Rowe Price, pointed out that the Fed is expected to cut rates by 25 basis points at the December meeting, followed by two more rate cuts of 25 basis points each next year, with the possibility of pausing the cuts afterwards, bringing the federal funds rate upper limit to 4%. Blerina Urui stated, "While the market's reflection of monetary policy seems reasonable, I believe that long-term yields may still rise due to increasing inflation and fiscal risk premiums. In an environment where the Federal Reserve can only moderately and with a lag respond to the persistently higher fiscal deficit risk, this becomes particularly important." After last week's rate cut by the Fed, the new rate stands at 4.5% to 4.75%. According to rate futures, the market currently believes there is a 35% chance that the Fed will not cut rates in December, with a 65% chance of a 25 basis point cut. Blerina Urui pointed out that at the Fed's press conference, she is particularly interested in how the Fed will respond to the uncertainties of Trump's presidency, fiscal policy, and tariffs. Powell described a model-based approach, which involves analyzing fiscal/tariff proposals multiple times before implementation, considering them as one of many factors affecting the economy. She believes that Powell played down the impact of Trump's policy changes on the Fed's dual mandate (price stability and full employment). She stated that given the recent loose fiscal policy leading to sharp hikes in inflation, if the Fed adopts Powell's outlined approach, they may lag in addressing inflation, eventually leading to overly loose policy. If inflation falls to target levels due to productivity gains, the accommodative rate environment is expected to support economic growth and CKH HOLDINGS risk assets. Blerina Urui believes that the Fed will closely monitor the upward trend in the 10-year Treasury bond yield. So far, the rise in long-term Treasury yields in the US has been primarily due to higher growth expectations rather than inflation uncertainty. She believes the Fed will interpret higher yields as detrimental to full employment, leading them to lean towards a dovish stance and maintaining a tendency to lower rates to a neutral level. Blerina Urui believes that Trump will personally select the Fed Chair nominee in May 2026, and they may lean dovish, which could be another factor requiring investors to demand higher risk premiums when holding US Treasury bonds.