Guggenheim CIO: The Fed will cut in December and again in 2026 as economy turns 'sluggish'

Core Viewpoint - The Federal Reserve is expected to cut interest rates again in December due to signs of economic slowdown, particularly affecting lower-income consumers and small businesses, while wealthier individuals and larger companies continue to thrive [1][2]. Economic Conditions - The economy is described as "bifurcated," with a two-speed dynamic where lower-income groups are struggling, leading to a sluggish broader economic outlook as indicated by the Fed Beige Book [1][2]. - Signs of economic weakness may prompt the Federal Reserve to lower its neutral rate to around 3% and continue rate cuts into 2026 [2]. Federal Reserve Actions - Following a rate cut at the end of October, the likelihood of another cut in December is uncertain, with traders estimating a 50-50 chance of a 25 basis point reduction [3]. - The composition of the Federal Reserve is expected to become more dovish, regardless of the outcome of the upcoming decisions [4]. Market Outlook - Lower interest rates and tax benefits from the One Big Beautiful Bill Act are anticipated to prevent a recession, with the economy being late-cycle but not yet in recession [5]. - Concerns about overvaluation in artificial intelligence stocks are mitigated by the fact that current companies are profitable and not excessively leveraging debt for expansion [5]. - The technology sector is expected to continue driving stock market performance, indicating further potential for market growth [6].