Economic Growth - The US economy is expected to show moderate growth in 2026, driven by continued technology investment from the AI boom and a recovery in traditional investment demand [1] - The Eurozone is likely to see a rebound in consumer spending as external trade shocks diminish, although industrial supply chain risks remain [1] - Japan's corporate sales growth is slowing, with business investment expected to maintain momentum but not accelerate significantly [1] Inflation - The US inflation rate is projected to experience slight fluctuations and moderate cooling, with tariff impacts diminishing and stable rental inflation [2] - The Eurozone has entered a healthy and moderate inflation environment, which is expected to continue into next year [2] - Japan's new cabinet's gasoline tax reforms are anticipated to suppress the apparent inflation rate, although demand-driven inflation may remain robust [2] Monetary Policy - The next Federal Reserve chair is expected to be between Waller and Hassett, with a potential 50bps rate cut early next year under Powell's leadership [3] - The European Central Bank is not expected to cut rates due to stable inflation, maintaining a deposit facility rate of 2% [3] - The Bank of Japan may raise rates by 25bps in the next quarter, maintaining a policy rate of 0.75% thereafter [3] Fiscal Policy - The effects of the US "Great Beautiful Act" are expected to manifest in early 2026, supporting overall consumption despite potential widening of wealth gaps [4] - The EU's fiscal stance is becoming neutral, characterized by continued defense expansion and restrained non-defense spending [4] - Japan's new Prime Minister Suga advocates for "responsible active fiscal policy," leading to moderate fiscal expansion [4] Asset Allocation - Market concerns regarding the independence of the Federal Reserve and the credibility of the US dollar may ease under Waller's leadership, impacting gold negatively and slightly increasing long-term US Treasury yields [5] - If Hassett is elected, the dollar may weaken, benefiting gold, while long-term Treasury yields could rise due to inflation expectations [5] - The overall outlook for US stocks remains positive, driven by the AI trend, while demand recovery is expected to boost gold and industrial metals [5]

Core Viewpoint - The article discusses the ongoing tension between the Federal Reserve and political pressures from Trump, highlighting Powell's ability to maintain the Fed's independence during the recent FOMC meeting [2][5][15]. Group 1: FOMC Meeting Insights - The focus of the September FOMC meeting was not only on the rate cut magnitude but also on the dynamics within the committee, including new member Milan's rapid inclusion and legal issues faced by member Cook [3]. - Only member Milan supported a 50 basis point cut, while other members, including Waller and Bowman, aligned with the majority [3]. - The median forecast for rate cuts in 2025 was raised from 50 basis points to 75 basis points, with only 9 out of 19 members supporting this adjustment [3]. Group 2: Economic Projections - The FOMC members have become more optimistic about the economy, raising the GDP forecast for 2025 to 1.6% from 1.4% and for 2026 to 1.8% from 1.6% [4]. - The unemployment rate forecast for 2026 was lowered to 4.4% from 4.5%, while the core PCE inflation forecast was increased to 2.6% from 2.4% [4]. Group 3: Market Reactions - The independence of the Fed has led to gold being the biggest loser from the FOMC meeting, as it had previously seen a 10% increase since the Jackson Hole meeting [5]. - Other asset classes experienced limited volatility, with the market's expectations for a series of 25 basis point cuts being met [5]. Group 4: Monetary Policy and Labor Market - Powell expressed concerns about the labor market, introducing the term "risk management cut" to describe the Fed's approach to rate cuts, which may pressure the stock market [9]. - The current labor market faces challenges from reduced immigration and weakening demand, impacting the overall economic outlook [9]. Group 5: Political Pressures - Trump's significant divergence from the Fed's economic growth expectations creates ongoing political pressure, as the Fed's forecasts do not align with Trump's desire for higher growth to alleviate debt pressures [14][15].

Group 1: Federal Reserve's Monetary Policy - In July, the Federal Reserve maintained the federal funds rate in the range of 4.25%-4.5%, citing a "tight balance" in the labor market and potential inflation risks from high tariffs[3][6] - The Fed's assessment of economic uncertainty focuses on rising inflation impacting real GDP growth rather than nominal output or employment issues[3][6] - The threshold for rate cuts remains high, with no clear indication of a September rate cut despite market speculation[3][10] Group 2: Inflation and Economic Outlook - Inflation risks are primarily driven by tariffs, which are seen as a short-term shock, but the long-term impact on the economy requires further evaluation[3][9] - The Fed acknowledges that the current inflationary pressures may just be the beginning of the effects from tariffs on goods inflation[3][9] - The labor market remains solid, with no signs of weakness, but there are downside risks to economic growth[3][11] Group 3: Market Implications - Improved risk appetite and economic outlook may continue to support U.S. equities and long-term Treasury yields, with the dollar index potentially returning to the 100 mark[3][12] - Emerging market assets, excluding China, may face valuation risks due to high tariffs and external demand pressures, despite some trade agreements[3][12]