ProLogis: Expects the Federal Reserve to cut interest rates by 25 basis points in December and to lower rates twice more next year

According to the Zhitong Finance APP, Blerina Uruci, Chief U.S. Economist at Pruis, commented on the U.S. economic outlook and Federal Reserve policy direction following the Fed's November meeting. She expects the Fed to cut interest rates by 25 basis points at the December meeting and anticipates two more rate cuts next year, each by 25 basis points, after which a pause in rate cuts may occur, bringing the upper limit of the federal funds rate to 4%. Although the monetary policy reflected by the market seems reasonable, long-term bond yields may still rise due to increasing inflation and fiscal risk premiums. This is particularly important in an environment where the Fed can only respond moderately and with a lag to the persistent high risk of fiscal deficits. At the press conference, there was special attention on how the Fed 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, viewing it as one of many factors affecting the economy. Powell downplayed the impact of changes in Trump's policies on the Fed's dual mandate (price stability and full employment). Given that recent expansionary fiscal policies have led to a surge in inflation, if the Fed adopts the approach outlined by Powell, they will lag behind in addressing inflation, ultimately resulting in 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. The Fed 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. The Fed may interpret higher bond yields as unfavorable for full employment, thus leaning towards a dovish stance and maintaining a tendency to lower rates to neutral levels. Finally, Powell made it clear that he will serve until the end of his term (May 2026), and according to the law, he or other governors cannot be dismissed. The nomination for the Fed Chair in May 2026 will be personally selected by Trump and may lean dovish. This could be another factor leading investors to require a higher risk premium when holding U.S. Treasuries