As the Federal Reserve dampens expectations for interest rate cuts, concerns are mounting that it may quietly conclude its rate-cutting cycle. However, analysts predict that this could present an opportunity to increase stock holdings.
Kim Il Hyuk, a researcher at KB Securities, argues that now is the time to increase stock allocations as the market grapples with uncertainties surrounding the incoming administration’s policies.
He notes that we are in a period where inflation concerns have tempered expectations for rate cuts.
The Fed’s concerns about the job market are assumed to persist, as evidenced by recent monetary policy decisions.
In August, heightened anxieties about the labor market led to a significant rate cut in September.
However, expectations for further cuts were rolled back as the job market stabilized. This underscores the Fed’s sensitivity to labor market conditions.
On Wednesday, Fed Chair Jerome Powell reaffirmed that the central bank will not intentionally weaken the job market to achieve its inflation target.
With average unemployment durations rising and upward rates trending, the Fed is expected to maintain its cautious stance.
Unlike the previous FOMC meeting, where participants sidestepped to evaluate the impact of the incoming administration’s policies, this time, some attendees acknowledged that policy uncertainties could influence inflation expectations.
Kim Il Hyuk observes that while both the Fed and markets are concerned about potential inflationary pressures from President-elect Trump’s proposed tariffs and immigration crackdown, he believes it is not probable that these policies will immediately stoke inflation upon implementation.
Analysts also predict that prioritizing debt ceiling negotiations over budget discussions could accelerate liquidity early next year, potentially fueling continued stock market gains.
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