Invesco: Expects the Federal Reserve to cut interest rates once again in December, continues to be optimistic about gold
Invesco Asia-Pacific Global Market Strategist Zhao Yaoting expects the Federal Reserve to cut interest rates once more in December, although the market's expectations for consecutive rate cuts may be overly extreme. He pointed out that future rate cuts will depend on data, and the slowdown in the U.S. economy and rising unemployment will influence policy direction. The Federal Reserve is expected to maintain a gradual easing policy, with a long-term positive outlook on gold, but the increase next year may be limited
According to the Zhitong Finance APP, Zhao Yaoting, Global Market Strategist for Invesco Asia Pacific, stated that at the Federal Reserve's October meeting, the Federal Open Market Committee (FOMC) decided to lower the target range for the policy interest rate by 25 basis points to 3.75% to 4%. Although this move aligns with widespread expectations in the financial markets, the decision was not unanimous. Future rate cuts will rely more on data, considering that the prolonged government shutdown in the U.S. has limited data visibility.
He pointed out that despite this, with the U.S. economy slowing and the unemployment rate rising in the fourth quarter, the bank still expects a rate cut in December. The bank believes that the market's expectations for consecutive rate cuts may be overly extreme and beyond a reasonable range. The bank anticipates that the Federal Reserve will maintain a gradual easing policy path, with the policy rate potentially reaching 3% to 3.25% by the end of 2026. The specific timing of rate cuts is less important than the overall trend direction.
He mentioned that as the market lowers expectations for a rate cut in December, U.S. Treasury yields have risen across the board. Federal funds futures show that the probability of a rate cut in December has decreased from 92% to 67%, and the expected policy rate by the end of 2026 has been raised from 2.95% to 3.05%.
He stated that the bank has long believed that a 10-year U.S. Treasury yield below 4% is difficult to sustain, and that long-term yields may face further upward pressure in the coming months and quarters. Additionally, the Federal Reserve may ease policy more aggressively than most major central banks, which could support the U.S. stock market and bring further depreciation potential for the dollar.
He noted that a weaker dollar, combined with better economic growth performance outside the U.S., could support emerging market stocks and bonds, which remain more attractive compared to U.S. assets. Although the bank remains optimistic about gold due to continued central bank and retail buying, the increase in gold prices may be limited next year due to reduced geopolitical risks and a relatively stable overall inflation outlook
