According to a report, Max Stainton, Senior Global Macro Strategist at Fidelity International, believes that the U.S. economy continues to demonstrate growth resilience, with AI-related capital expenditure remaining an important driver supporting the economy, and the labor market regaining strength, which could keep inflation pressures elevated for a longer 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 slowly, 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 its policy target.
Fidelity International noted that the Fed's decision to keep the policy rate unchanged in October was in line with market expectations. Although two officials supported a rate hike, the overall decision remained focused 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 fell short of 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 future rate direction, emphasizing that policy decisions will be adjusted based on economic data. Markets continue to focus on the rate hike path for December and next year, with the subsequent policy direction still dependent 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 rate decisions; in 2028, a "6+2" meeting arrangement is expected to be formally adopted, converting two of the eight annual meetings into policy strategy discussions, giving the committee room to discuss "monetary policy strategy." Regarding the rate policy path, the firm expects the Fed to raise rates once each in December this year and March next year, and if global supply constraints persist, an additional rate hike cannot be ruled out. As a high interest rate environment may persist, inflation pressures and policy uncertainty will continue to affect market performance, but the resilience of the U.S. economy and corporate earnings still 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, and the labor market remaining steady. Looking ahead to 2027, as the impact of high interest rates on the housing market, consumption, and other rate-sensitive sectors gradually materializes, U.S. economic growth is expected to slow moderately, gradually moving toward its long-term trend level rather than experiencing a significant 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 disinflation process. Although robust corporate earnings and continued AI investment provide support for the market, high global government bond yields, rising fiscal pressures, and geopolitical uncertainty make the investment environment more challenging. Particularly with market gains concentrated and varying sensitivity of different assets to 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 taking advantage of allocation opportunities arising from repricing across different assets.
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