Fidelity: Expects the Fed to Join the Rate Cut Ranks, Bullish on Japanese Stocks and Tech Stocks Long-Term Outlook

Fidelity International pointed out that overall, the probability of a soft landing (low growth and low inflation) in the US economy has increased. Due to slowing growth and inflation, it is expected that the Federal Reserve will join the rate-cutting ranks. With loose financial conditions not likely to pose recession risks, Fidelity maintains a positive view on risky assets, remains optimistic about stock investment prospects, and adopts a wait-and-see approach towards credit bonds. Considering the escalating geopolitical risks and uncertainty surrounding the US election, the investment strategy is recommended to focus on global high-quality dividend strategies, complemented by high-quality US dollar bonds as the main core asset allocation to counter market volatility, while having a positive outlook on Japanese stocks and technology stocks in the long term.

Fidelity International stated that as expected by the market, the Federal Reserve will maintain the federal funds rate in the target range of 5.25% to 5.5%. This marks the 8th consecutive time the Fed has kept rates unchanged, with the benchmark rate remaining at a high level for the past 23 years. In the past year, inflation has eased, and the trend of slowing inflation has expanded from commodities to core services excluding housing and housing services. There is confidence that price pressures will continue to decline, and the committee believes progress has been made towards the 2% inflation target.

The Fed stated that the current employment level has returned to pre-pandemic levels, but the goal of maximizing employment is facing downside risks. It emphasized closely monitoring the labor market and remaining vigilant against signs of a sharp decline. The committee also stated that the risks of achieving the employment and inflation goals continue to be balanced, with a focus on the dual risks facing the two major tasks in the future. If inflation continues to slow as expected, economic growth remains at a reasonable strong level, and the labor market remains stable, there is a possibility of discussing a rate cut as early as the September meeting, but a 0.5% rate cut is not currently being considered.

As market attention on the US election intensifies, Powell stated that any rate cuts by the Fed are absolutely unrelated to politics and emphasized that the Fed will never attempt to formulate monetary policy based on election results that have not yet occurred.

Fidelity International's macro and strategic asset team stated that as expected by the market, the Fed maintained rates unchanged. However, due to clear progress in inflation and the labor market, the Fed has signaled a rate cut, with Chairman Powell revealing the start of a rate-cutting cycle in September. Although this rate meeting lacked forward guidance, the post-meeting statement and press conference still sent strong signals. Overall, Fidelity believes that the uncertainty surrounding the Fed's monetary policy this year has significantly decreased. As for policy direction in 2025, it will depend on the results of the US election and the future development of trade and fiscal policies