Prudential: The Fed is expected to cut interest rates by 25 basis points in December and cut rates twice next year.

Pral Luxury Chief US Economist Blerina Uruci commented on the outlook for the US economy and the direction of Federal Reserve policy after the Fed's November meeting. She expects the Fed to cut interest rates by 25 basis points at the December meeting, and also expects the Fed to cut rates twice more next year, each time by 25 basis points, before possibly pausing the cuts to bring the federal funds rate ceiling to 4%. Although the market's reflection of monetary policy seems reasonable, long-term bond yields may still rise due to increasing inflation and fiscal risk premiums. In an environment where the Fed can only moderately and laggingly address the ongoing high fiscal deficit risk, this is particularly important. At the press conference, particular attention was paid to how the Fed will respond to the uncertain factors of fiscal policy and tariffs during President Trump's term. Powell described a model-based approach, which involves analyzing fiscal/tariff proposals multiple times before policy implementation, with the committee viewing it as one of the many factors affecting the economy. Powell played down the impact of Trump's policy changes on the Fed's dual mandate of price stability and full employment. Given that loose fiscal policy in recent years has led to a rapid rise in inflation, if the Fed adopts Powell's outlined approach, they will lag behind the situation in addressing inflation, ultimately leading to overly loose policy. If productivity improvements lead to inflation falling to the target level, the loose rate environment is likely to support economic growth and CKH HOLDINGS risk assets. The Fed will closely monitor the rising trend in the 10-year Treasury bond yield. So far, the rise in long-term US bond yields has been mainly attributed to higher growth expectations, rather than inflation uncertainty. The Fed will interpret higher bond yields as unfavorable for full employment, leading them to lean towards a dovish stance and maintain a tendency to lower rates to a neutral level. Finally, Powell clearly stated that he will serve until the end of his term in May 2026, and under the law, he or other governors cannot be dismissed. The nomination of the Fed chair in May 2026 will be personally selected by President Trump, and may lean towards a dovish stance. This could be another factor leading investors to require a higher risk premium when holding US government bonds.