Fidelity International Senior Global Macro Strategist Max Stainton believes that the U.S. economy continues to demonstrate resilient growth, with AI-related capital expenditure remaining a key driver supporting the economy. Combined with a renewed strengthening of the labor market, inflationary pressures may persist for an extended period. He expects the U.S. inflation rate to rise to approximately 3.4% by the end of 2026, before gradually declining to 2.5% next year.
Although inflation is expected to cool gradually, in an environment where economic growth remains supported and the labor market stays tight, the Federal Reserve may need to extend its rate hike cycle to ensure inflation continues to move toward the policy target. Fidelity International noted that the Fed kept the policy rate unchanged in October, in line with market expectations. Although two officials supported a rate hike, the overall decision continued to focus on observing inflation trends, reflecting differing views among officials on the timing of rate increases, with market attention shifting to the policy path for the end of the year and next year.
Fed Chairman Warsh stated that although September inflation data still did not meet the policy target, the Fed would not act based on a single data point and would instead observe overall inflation trends. Additionally, although financial conditions have tightened, they have not yet reached restrictive levels, indicating that the Fed will continue to adjust policy based on subsequent economic data. Warsh did not provide clear guidance on the future direction of interest rates, emphasizing that policy decisions will be adjusted according to economic data. Markets continue to focus on the rate hike path for December and next year, with the subsequent policy direction still depending on progress in inflation cooling and economic growth momentum.
Furthermore, Warsh announced that starting in the fall of 2027, a meeting will be dedicated specifically to discussing long-term monetary policy strategy without making interest rate decisions. In 2028, a formal "6+2" meeting arrangement is expected to be adopted, converting two of the eight annual meetings into policy strategy discussions, giving the committee space to discuss "monetary policy strategy."
Regarding the interest rate policy path, the firm expects the Fed to raise rates once each in December this year and March next year. If global supply constraints persist, an additional rate hike cannot be ruled out. As the high interest rate environment may continue, inflationary pressures and policy uncertainty will still affect market performance, but the resilience of the U.S. economy and corporate earnings continue to provide fundamental support. In an environment where opportunities and risks coexist, the investment strategy maintains a balanced allocation, balancing market growth opportunities with risk management while retaining flexibility to respond to market changes.
The U.S. economy currently continues to show strong resilience, with AI-related investment and corporate earnings continuing to provide growth momentum, while the labor market remains steady. Looking ahead to 2027, as the impact of high interest rates on the housing market, consumption, and other interest-rate-sensitive sectors gradually materializes, U.S. economic growth is expected to moderate, gradually moving toward its long-term trend level rather than experiencing a pronounced recession.
On the other hand, inflation risks remain tilted to the upside, and factors such as a tightening labor market and global supply constraints may slow the inflation cooling process. Although solid corporate earnings and sustained AI investment continue to support the market, elevated global government bond yields, rising fiscal pressures, and geopolitical uncertainty make the investment environment more challenging. Particularly as market gains become concentrated and different assets show varying sensitivity to interest rate changes, investment opportunities may further diverge.
Currently, the firm maintains a neutral stance on equities, credit bonds, government bonds, and cash, focusing in the short term on observing changes in market risk and valuations while seizing allocation opportunities arising from the repricing of different assets.
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