Mitsubishi UFJ: The Federal Reserve's policy in the second half of next year will be complicated by leadership changes

Mitsubishi UFJ stated that the Federal Reserve voted 9 to 3 to lower interest rates by 25 basis points, acknowledging that the labor market is gradually cooling down, and Powell also emphasized the significant downside risks facing the labor market.

Regarding inflation, the Federal Reserve pointed out that if no new tariffs are imposed, goods inflation may peak in the first quarter of 2026, but the risks of persistent inflation still exist. Powell signaled that rate hikes are not a baseline expectation, and there are divergences among FOMC members between maintaining rates and cutting rates.

The latest released median dot plot shows that the Federal Reserve will only cut rates once in 2026, a stance that is clearly more hawkish than the market's expectation of about 55 basis points (or slightly more than two rate cuts). Powell also emphasized that the Federal Reserve is currently "in a favorable position" to patiently observe the development of the U.S. economic situation.

Looking ahead, the policy outlook for the second half of next year may become complicated due to changes in the Federal Reserve leadership, increasing market uncertainty. (Jin Shi)