ProLogis: The U.S. economy is stable but growth is slowing; the Federal Reserve may maintain a neutral interest rate of 3.75%

According to the Zhitong Finance APP, recently, Platts expert Christopher Dillon analyzed the impact of U.S. economic data and Federal Reserve policies on the fixed income market. Currently, U.S. economic growth exceeds 2%, the unemployment rate is 4.0%, and the core personal consumption expenditure inflation rate is within the Federal Reserve's target range (currently at 2.81%). The U.S. economy is in a "Goldilocks" state (i.e., economic development is just right). To maintain this state, monetary policy should be set at the central bank's "neutral" interest rate level. In today's environment of reduced globalization, the neutral federal funds rate may be 3.75% or higher. It is expected that the Federal Reserve will remain on hold in the first half of 2025, but two rate cuts of 0.25% each are still anticipated before the end of this year.

The latest U.S. inflation data for January is high, rising 0.4% month-on-month and 3.3% year-on-year. Although the surface numbers are concerning, and the market is seeking signals for rate cuts, the main factor driving inflation higher in recent years, "Owners' equivalent rent," has stabilized. At the same time, the January data may have seasonal factors. Investors will closely monitor the Federal Reserve's economic forecast summary and the new "dot plot" in March to analyze the concerning inflation data from January.

Although the U.S. economy remains robust in the short term, the growth rate is slowing down. Even though the condition of U.S. consumers remains positive, concerns about potential changes in capital expenditure and fiscal spending are beginning to emerge. The scale of this transition may be difficult to navigate smoothly.

Currently, the yield on the U.S. 10-year Treasury bond seems to fluctuate within the range of 4.40% to 4.80%. Future inflation trends will test this range alongside Treasury supply. Currently, the U.S. primarily finances government deficits through the issuance of Treasury bills. If the U.S. government debt ceiling issue is resolved, an increase in Treasury supply may also test this range, especially with reduced interest from foreign investors in this asset class.

The Federal Reserve is expected to maintain its policy, while the European Central Bank is anticipated to make significant rate cuts in the coming months. Additionally, many emerging market central banks need to consider exchange rate fluctuations when formulating monetary policy. For this reason, and due to the current weakening of globalization trends, the policy pace of many emerging market central banks may increasingly diverge from that of the Federal Reserve.