ProLogis: The Federal Reserve may pause after cutting rates 3 more times

According to the Zhitong Finance APP, after Trump's victory in the election, many economists have revised their expectations for future interest rate cuts by the Federal Reserve. Blerina Uruçi, Chief U.S. Economist at T. Rowe Price, pointed out that the Federal Reserve will cut rates by 25 basis points at the December meeting, followed by two more cuts of 25 basis points each next year, after which it may pause rate cuts, bringing the upper limit of the federal funds rate to 4%. Blerina Uruçi stated, "Although the monetary policy reflected by the market seems reasonable, I believe that long-term yields may still rise due to increasing inflation and fiscal risk premiums. This is particularly important in an environment where the Federal Reserve can only respond moderately and with a lag to the persistent high risk of fiscal deficits." After the Federal Reserve's rate cut last week, the latest rate has dropped to between 4.5% and 4.75%. According to interest rate futures, the market currently believes there is a 35% chance that the Federal Reserve will not cut rates in December, while the probability of a 25 basis point cut is 65%. Blerina Uruçi noted that during the Federal Reserve's press conference, she was particularly focused on how the Federal Reserve would respond to the uncertainties of fiscal policy and tariffs during President Trump's term. Powell described a model-based approach, where multiple analyses of fiscal/tariff proposals would be conducted before policy implementation, and the committee would view this as one of many factors affecting the economy. She believes that Powell downplayed the impact of changes in Trump's policies on the Federal Reserve's dual mandate (price stability and full employment). She stated that given the surge in inflation caused by loose fiscal policies in recent years, if the Federal Reserve adopts the approach outlined by Powell, they will lag behind the situation in addressing inflation, ultimately leading to overly accommodative policies. If inflation falls to target levels due to productivity improvements, a loose interest rate environment is expected to support economic growth and risk assets. Blerina Uruçi believes that the Federal Reserve will closely monitor the upward trend in 10-year Treasury yields. So far, the rise in long-term U.S. Treasury yields has been primarily attributed to higher growth expectations rather than inflation uncertainty. She believes the Federal Reserve will interpret higher yields as unfavorable for full employment, thus leaning towards a dovish stance and maintaining a tendency to lower rates to neutral levels. Blerina Uruçi believes that the nomination for the Federal Reserve Chair in May 2026 will be personally selected by Trump and may lean dovish, which could be another factor leading investors to require a higher risk premium when holding U.S. Treasuries