“I have learned from my mistakes, and I am sure I can repeat them exactly” Peter Cook

” Not only, but also” was the title of a comedy show featuring Peter Cook and Dudley Moore in the late 1960s. Well, today not only do we get a rate-cut decision, but we also receive the Fed’s Summary of Economic Projections, which will offer crucial context on how central bankers view the path of rates, inflation, and the economy in the year to come. Summing up the market’s expectations for later today, I think they anticipate, as was the case at the last rate cut, what’s termed a hawkish cut. In other words, the Fed will announce another 25 basis points today, but indicate that markets should not anticipate another one anytime soon. The markets’ reaction will also focus on the number of dissenters to a cut, which could reach five. There may be an initial dip in equity prices, but they will likely stabilise.

Karen Ward, JP Morgan’s chief EMEA strategist, writing in yesterday’s Financial Times, looks ahead to 2026 and rightly points out that whilst the tone is an optimistic one for next year, what are the potential risks? Common perception is lofty valuations, the AI bubble, geopolitical tensions, and concerns about the growth of private credit. Overall, the view is that equity markets should be supported by continued fiscal stimulus, with US consumers benefiting in the New Year from tax refunds that will burn a hole in their pockets to spend. Markets are also going to enjoy further monetary easing. Trump is pretty clear that he wants to appoint a dovish new chair who will support his desire for lower interest rates and continued government spending. Even in Europe, as Karen points out, Germany has joined the fiscal party, offering to spend 500 billion euros.

In her view, this is not generally an environment conducive to inflation coming down, and the risk is that inflation will lead to higher, not lower, interest rates. There are few places to hide during periods of inflation; stocks and bonds tend to fall. Real assets are one option, and bonds are the worst. In the past week, we have seen Treasury yields rise, helping push the 10-year yield on Monday to its highest level since late September, according to Dow Jones Market Data. We have also seen many commodity prices rise overall in the past few weeks, most notably copper. Oil has not done much at present. The price of Gold, having consolidated around $4000, has ticked higher recently. Imagine a new Fed chair brought in to cut rates is forced to raise them in the midterms, that would incur the wrath of Mr Trump.