Aberdeen: It is expected that the Federal Reserve will cut interest rates twice this year, and the shift in the U.S. economy will provide investment opportunities for other regions

According to the Zhitong Finance APP, the Federal Open Market Committee (FOMC) of the Federal Reserve, as expected by the market, maintained the target range for the federal funds rate at 4.25% to 4.5%, keeping it unchanged for two consecutive meetings. Considering that the Federal Reserve may have more opportunities to aggressively cut rates during an economic downturn rather than raising rates in response to rising inflation, Amundi expects the Federal Reserve to cut rates twice this year, leaning towards more cuts rather than fewer.

Ray Sharma-Ong, Director of Multi-Asset Investment Solutions at Amundi Southeast Asia, stated that during the FOMC meeting in March 2025, officials revised their forecasts for economic growth and inflation to lean towards stagflation, while the interest rate dot plot remained unchanged.

A recession in the U.S. is not the bank's base case forecast, and the price effects of tariffs are expected to mainly impact relevant sectors of tradable goods. Once hard economic data slows down, the Federal Reserve may respond. Recent market trends have been driven by momentum and have shown signs of overreaction. The recent stock market sell-off has already reached about 50% of what the bank would expect in a recession scenario.

Currently, the main uncertainty revolves around the scale of the announced reciprocal tariffs on April 2, which may lead the market to further reprice the downside risks to economic growth. Against this backdrop, U.S. Treasuries are expected to perform well due to the downside risks to U.S. growth, as the Federal Reserve views inflation as temporary, coupled with a slowdown in the pace of balance sheet reduction.

Before the interest rate meeting, the stock market reflected investors' concerns about the risks of recession and awaited guidance from the Federal Reserve. After the meeting, the Federal Reserve stated that hard data on U.S. growth remains stable, the effects of inflation may be temporary, while acknowledging that uncertainty about the economic outlook has increased.

Due to the increased uncertainty, Amundi expects market volatility to also intensify. As the U.S. economy shifts, this provides investment opportunities in other regions, as investors will shift from the U.S. to international markets to diversify risk. Europe may benefit from increased fiscal stimulus, lower geopolitical risks, moderate oil prices, and weaker inflation. Additionally, the Chinese market is expected to gain support from stock market measures, fiscal and monetary stimulus, and a focus on consumption and technology. In India, despite rising tariff risks, the market may still benefit due to the relatively low ratio of goods exported to the U.S. compared to GDP