U.S. Federal Reserve Interest Rate Cuts

By Bansari Mayur Kamdar
(Reuters) – The U.S. Federal Reserve will continue cutting interest rates in November, but policymakers are navigating a complex situation as inflation is no longer declining rapidly, according to Morgan Stanley Wealth Management's Chief Investment Officer, Lisa Shalett.

Shalett highlighted that the Fed is focusing on a labor market that shows mixed signals, stating, "They're not going for the 2% (inflation) target; they've abandoned it."

Most Fed policymakers signaled support for further rate cuts in the months ahead. However, Atlanta Fed President Raphael Bostic suggested that it might be prudent to skip a rate move in November.

Shalett noted that while the equity market hasn’t fully acknowledged these changes, the bond market is beginning to reflect higher inflation expectations. Recent data indicated that U.S. consumer prices rose slightly more than anticipated in September, while producer prices remained stable.

Traders are currently pricing in an 89% chance of a 25 basis-point rate cut at the Fed's policy meeting on November 6-7, shifting away from earlier expectations of a half-point cut following strong employment data last month.

Furthermore, Shalett expressed uncertainty regarding a definitive outcome from the U.S. presidential election on November 5 due to the competitive nature of the race, where polls indicated tight standings between Democratic Vice President Kamala Harris and former Republican President Donald Trump.

To navigate rising market volatility, Shalett advised clients to invest in “real assets” such as gold, commodities, real estate, and energy infrastructure assets, along with market-neutral hedge fund strategies.

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