GUOTAI JUNAN I Zhou Hao: Gold has become a risk asset, priced according to AI logic, and the Federal Reserve chairman that Trump should appoint is surprisingly not Hassett?

The changes in the macro world are often preceded by narratives, followed by data.

In this live broadcast, Guotai Junan International's Chief Economist Zhou Hao's responses present not just simple predictions, but a rearrangement of the macro framework itself—

He repositions interest rates, inflation, asset pricing, and technology cycles within a larger narrative:

From "the new 5% U.S. economy" to "fragmented rate cuts," from the reconstruction of the gold paradigm to the long-cycle certainty of AI, each viewpoint points to the same theme:

In the coming years, we need to understand the world with a completely new language. Click to watch the replay → Guotai Junan International Zhou Hao: What are the highlights after the December FOMC?

Key points overview:

1. "The new 5% U.S. economy": In the coming years, the U.S. will operate steadily at a new equilibrium of inflation 3%+ growth 2%.
2. A 25bp rate cut by the FOMC is not "dovish," but rather a "step-by-step" approach under a cautious framework. The Federal Reserve is neither aggressive nor wavering, but precisely executing according to established logic.
3. Hassett is a straw, not a camel. The true direction of monetary policy is determined by the economy and inflation. The choice of chairperson is merely a marginal variable; the fundamentals are the main theme.
4. Long-term rates are actually "safest," as they have already priced in all uncertainties. High is not risk; high is "uncertainty premium."
5. Inflation will not spiral out of control, nor will it return to the old era—it will oscillate within a high range. The U.S. has entered an "era of high stability," which will be the backdrop for inflation in the coming years.
6. Gold has shifted from a safe-haven asset to a risk asset, and its pricing logic will be closer to AI rather than the U.S. dollar.
7. AI is like true love: the direction is absolutely correct, and the bubble is merely a twist that must be traversed to reach the future. Set aside short-term fluctuations and understand that the core essence of AI is "long-term certainty."
8. Global monetary policy has entered a "multipolar era"—the dollar is passively stable, and non-dollar currencies also struggle to be strong. The world is no longer "looking only at the U.S.," and exchange rates under a multipolar framework are harder to trend.
9. "Fragmented rate cuts" will become the new normal: each meeting is an independent judgment rather than a coherent curve.
10. Carrying long-term U.S. Treasuries is a highly certain opportunity for 2026. Positive carry is not about short-term satisfaction, but rather patience and persistence akin to "the lychee of Chang'an."

Q1: How does this FOMC meeting differ from your expectations? Is it considered dovish?

Zhou Hao: I personally believe that this FOMC is actually very much in line with expectations.

First, this is a very standard 25 basis point rate cut, and at the same time, the Federal Reserve made a small liquidity operation, buying more short-term bonds.

Second, the dot plot itself is quite interesting; there are significant internal divergences, but once averaged, it suggests "one cut next year, one cut the year after," giving the impression that the Federal Reserve overall seems to have no particularly strong view—just consider it a very neutral path of "one cut next year, one cut the year after." Third, many interpretations that everyone saw this morning lean towards dovish, but I personally do not fully agree. I would characterize this as: continuing the previously cautious attitude, rather than a particularly obvious dovish statement.

If I look at Powell's entire set of remarks this time, the core points are a few:

The labor market is cooling, so there is a need to consider interest rate cuts;

Liquidity is somewhat tight, so some short-term debt operations need to be done;

The judgment on inflation is "uncertain," but there is still optimism about the overall U.S. economy;

As for whether to continue cutting interest rates in the future, it will depend on the situation.

From the market reaction, if we don't look at the stock market first and only look at U.S. Treasuries, this time is basically a "fully pricing" event; U.S. Treasuries hardly moved, indicating that the market had already priced in this 25bp rate cut and this communication method.

Q2: Regarding the candidates for the next Federal Reserve Chair, on Polymarket, Hassett's winning probability is close to 80%. What do you think about the impact of Hassett's appointment on the Federal Reserve?

Zhou Hao: Many people interpret Hassett as a more dovish candidate for Federal Reserve Chair, and I would interpret it this way:

First, Hassett will indeed marginally influence Federal Reserve decisions. If it was already supposed to be a bit dovish, he might make it a bit more dovish, but he will not change the overall direction. Second, I would use a metaphor: "Hassett is the last straw that breaks the camel's back, but Hassett is not the camel." The camel itself is still the fundamentals of the U.S. economy and U.S. inflation, so people shouldn't place too much weight on "who becomes the chair." Third, Hassett is more establishment-oriented, and his own research on monetary policy is not extensive, so I do not believe he will overturn or significantly change the current monetary policy framework.

In contrast, I personally would prefer Kevin Warsh for a very simple reason:

He believes that the U.S. monetary policy framework itself is wrong;

I somewhat agree with this view.

The world is undergoing significant changes, with many new developments, and the Federal Reserve almost always says "uncertain," but this "uncertain" has been known for a long time. Therefore, after countless uncertainties, you must provide some certain things, either by admitting that you were wrong in the past or acknowledging that future adjustments to the framework are needed.

For example:

Are eight meetings a year too frequent?

Is it necessary to convey the stance through "whether to raise interest rates" every time?

Can we express policy direction in a less frequent and more structured way?

These are actually the reasons I appreciate Kevin Warsh: he at least dares to propose framework-level reflections.

But back to reality, if Hassett really takes office, I would still emphasize that statement: Hassett is just a marginal variable; he will not change the fundamental direction of U.S. monetary policy. The Federal Reserve is very likely to remain the same—many analysts sitting together, discussing for a long time, ultimately arriving at a conclusion that "looks like a conclusion but actually doesn't quite resemble one."

Q3: In your report, you mentioned that the U.S. economy will become more "balanced" by 2026. What does this balance specifically entail?

Zhou Hao: What I mean by "balance" has two layers of meaning:

First, the U.S. is an economy that needs medication. It currently has issues with high blood pressure and high inflation, but these can be controlled through medication (monetary policy):

Inflation will gradually decline from its high levels;

Economic growth will moderately cool down, returning to a "relatively normal" range.

Second, the arrival of AI will lead to a moderate cooling of the labor market. Investments and infrastructure related to AI will increase, but at the same time, it will exert pressure on hiring in certain industries, which will also help to cool inflation to some extent.

• A New 5% Economy

My basic judgment about the U.S. in the coming years is that it will enter a "new 5% economy":

Inflation will be around 3%;

Real GDP growth will be around 2%;

2+3=5, this is a new 5%.

The Federal Reserve's latest projection is actually quite close to this framework, but its ratios on these two items differ slightly from mine:

The Fed may be slightly more optimistic about growth (a bit higher than my view);

Slightly more optimistic about inflation (a bit lower than my view).

But overall, everyone is working around this "5%," just a matter of whether it's 2.3+2.7 or 2.4+2.6.

So when I talk about "balance":

On one hand, it is a new macroeconomic equilibrium: the U.S. enters a new 5% economy;

On the other hand, it is the convergence of market divergences: in this round of outlook, I found that my differences with the consensus have decreased significantly compared to the past two years—this is a relatively rare situation in recent years.

Q4: In your report, you describe this round as "fragmented rate cuts," rather than continuous rate cuts. How should this "fragmented" approach be understood? What does it mean for interest rates, especially long-term rates?

• Fragmented Rate Cuts: Assessing as We Go

Zhou Hao: The idea of "fragmented rate cuts" is actually a conclusion I drew from referencing the monetary policy path after the 2013 Chinese cash crunch.

First, we have entered an "unknown unknown" world. In this uncertainty, the actions you can take are very limited; you can only: assess again at that moment. Therefore, each interest rate meeting becomes an independent segment:

Before the rate cut, everyone says "uncertain";

After the cut, there is a brief feeling of "certainty";

After a while, uncertainty begins again.

Second, an important external manifestation of this "fragmented" approach is the repeated fluctuations of long-term rates:

Each time rates are cut, long-term rates will drop a bit; Before the next interest rate meeting, it will slowly climb up again;

Regardless of whether that time is a rate cut or remains unchanged, the long end will go down again, and then slowly come back up.

This is very similar to the state after the money shortage in China back then—policy is clearly implementing easing operations, but the market is "not certain" psychologically, so long-term interest rates remain at a relatively high level.

• Long-term interest rates are instead "safe"

There is an interesting point here:

Many people refer to the long-term interest rates and the spread between short-term rates, such as the 2-year and long-term rates, as term premium. However, I agree with the viewpoint of a certain article:

The so-called "term premium" now is essentially "uncertainty premium."

Because everyone is uncertain, they set the long-term interest rates higher,

The more uncertain it is, the more preference there is for the short end.

In this case, I would argue:

After so many rounds of uncertain pricing, long-term interest rates are, in a sense, safe, because they have already absorbed a lot of uncertainty.

• If you can't find the perfect "economic-inflation mix," do less

Unless one day we really find that perfect "mix between economy and inflation,"

Otherwise, I would lean towards two choices:

Either accept the "uncertain" state for a long time;

Or do less high-frequency, strongly certain actions, such as not always expressing positions through frequent rate hikes or cuts, but rather set a general direction, let the market run for a while, and then see if adjustments are needed.

So I say "fragmented rate cuts," essentially form a policy path in a high-uncertainty era: each meeting is a localized decision, and it is impossible to draw a smooth rate cut curve in advance.

Q5: You mentioned the risk of inflation re-emerging in your report. Will there be a sudden surge in inflation next year, forcing the Federal Reserve to pause rate cuts or even shift direction?

Zhou Hao: To be frank, almost no one can speak clearly about the topic of inflation, and neither can I.

Let me give an observation from a friend of mine:

When the Republican Party is in power and the economy is bad, they often believe that "foreigners are taking away jobs," so they tend to raise taxes and tariffs;

When the Democratic Party is in power, they also feel the economy is bad, but they choose to cut taxes and open up more cheap imports to help Americans consume.

So his conclusion is:

What truly affects inflation is not "raising taxes or cutting taxes" itself, but the underlying macro structure and economic conditions.

In the current environment, my general judgment on inflation is:

First, total demand will not be particularly strong, nor will it collapse severely.

It won't be strong enough to let inflation completely spiral out of control;

Nor will it be weak enough to cause inflation to collapse directly.

Second, AI has brought about a "K-shaped American economy."

Certain industries are doing very well, and AI-related infrastructure investments are continuously rising; At the same time, AI is exerting pressure on the labor market, and hiring is slowing down in some areas.

So you will see inflation presenting a state of:

Not rising too much, not falling too fast, repeatedly bouncing in a relatively higher range compared to history.

Third, the supply side and tariffs are key areas to observe around 2026.

Tariffs will make many things appear more expensive;

However, because the tariffs in the United States are high, some countries may be forced to lower their export prices to the U.S. to maintain their market;

This will have new impacts on global supply and U.S. prices in the coming years.

Overall, I tend to believe that:

Inflation may fluctuate in the short term, occasionally spiking a bit;

But it is unlikely to "spiral out of control";

And it is also not easy to return to the low inflation state of the past 20 years.

Q6: This year, the U.S. fiscal deficit is about $1.78 trillion, and it may slightly rise to $1.82 trillion next year. Do you think such a huge fiscal deficit will constrain the Federal Reserve's monetary policy next year?

Zhou Hao: On the contrary, I think this issue is not that scary in the short term.

First, this is the first year after the pandemic where we see the fiscal deficit better than expected. The U.S. fiscal year runs from October to the end of September the following year, and the data I saw for the past fiscal year shows that the deficit situation was actually better than I expected. A key reason is:

The U.S. really collected hundreds of billions of dollars more in tariffs.

It was previously hard to imagine that tariffs could become such a significant source of fiscal revenue, but this has indeed happened.

Second, looking ahead 1-2 years, tariff revenue will still be an important variable, but its significance will decline after 2026.

As long as we do not see a typical "out-of-control deficit," I do not think it will forcibly constrain monetary policy.

Third, the real support of monetary policy for fiscal matters is in the interest rate term structure.

Buying long-term bonds, buying short-term bonds, or doing some distortion operations;

Providing a relatively suitable interest rate environment for fiscal operations.

• Fiscal policy has shifted from a "passive machine" to a "metronome"

Another important change is:

In the past, U.S. fiscal policy was more like a machine; it would give you as much money as you needed, responding passively. In recent years, it has increasingly actively intervened in residents' lives and industrial sectors, becoming a "metronome."

You can see this from the debt ratio of American households and the private sector:

The overall debt situation is actually quite healthy;

In this context, the active involvement of fiscal policy is not necessarily a bad thing; it plays more of a role in rhythm control within the internal cycle.

From the market performance perspective:

U.S. Treasury yields have not experienced a real "deterioration" in the past year;

The stock market and other dollar-denominated assets have also performed well.

All of this indicates that:

Before everyone shouts that "the fiscal deficit is about to explode," the reality presented by the data is that the U.S. fiscal policy is operating on a controllable and proactive track, and I prefer to see it as a metronome within the system

Q7: You mentioned that the 2-year U.S. Treasury yield is unlikely to break below 3.5%, and the 30-year is unlikely to break above 4.7-4.8%. Given this range, would you recommend investors to carry long-term U.S. Treasuries?

Zhou Hao: Yes, I still believe that carrying long-term U.S. Treasuries is a relatively robust trade.

First, why is it difficult for the 2-year yield to break below 3.5%?

Because the market is relatively restrained in pricing the rate cuts over the next two years:

After this year, it will be around 3.75%;

Another cut would bring it to 3.5%;

People are hesitant to bet on an "extremely aggressive" rate-cutting path.

Second, the long-end spread is still there, providing you with a cushion.

Currently, the spread between the 2-year and 30-year is about 120 basis points, which I think is reasonable and still provides some protection for long-term bonds.

• The Lychee of Chang'an: Positive carry is a form of practice

Let me give a more relatable example: In some cities, the real estate market is a typical case of negative carry:

Housing prices are under pressure;

Rental yields are not high.

In the current environment, long-term U.S. Treasuries represent a form of positive carry. However, this path won't be easy; it resembles the movie "The Lychee of Chang'an":

You work hard to deliver lychees to Chang'an, but in the end, others might just glance at them and think, "It's just okay." But if you don't deliver them, what else can you do?

In my view, investing itself is a form of practice:

You may repeatedly get "beaten" by the market;

You may not gain everyone's approval;

But in this process, you will gain many returns that are not reflected in short-term net value—experience, understanding, and patience.

From this perspective, carrying long-term U.S. Treasuries is not only a strategy but also a part of an investor's self-cultivation.

Q8: You judge that the U.S. dollar will "passively remain stable" next year. In the context of policy divergence among major economies, why do you come to this conclusion?

Zhou Hao: Let me first mention a new phenomenon over the past two years:

More and more economies are becoming more independent and more endogenous.

In the past, it was enough to look at the U.S.; Europe, Japan, and Australia often followed the U.S.

That's not the case anymore:

Europe may raise interest rates;

Australia may raise interest rates;

Japan is almost certain to raise interest rates;

The U.S. is likely to lower interest rates.

This is the result of de-globalization, where each economy makes choices based on its own issues.

The second point is that even if the U.S. lowers interest rates, its absolute interest rate level is still likely to be higher than that of other major economies:

After the cuts, it may still be higher than Europe;

Even after Japan "raises rates," U.S. rates may still be higher than Japan.

From this perspective, a "high interest rate environment" does not automatically mean a strong dollar, but it also does not necessarily represent a long-term structural negative On the other hand, non-US currencies also have their own issues:

As for the Japanese yen, everyone knows that Japan will definitely raise interest rates, but a fiscal stimulus plan is enough to keep the yen weak;

If the Eurozone is forced to raise interest rates, it is likely due to inflation issues and a poor economy.

Overall:

The US dollar does not seem to have the conditions for a significant strengthening, but non-US currencies also do not have a solid foundation to develop a strong trend.

Therefore, I would define the US dollar in the coming years as a "passively stable" pattern.

Q9: Can the strength of gold continue into next year?

Zhou Hao: Before answering about gold, I want to emphasize one point:

I believe gold is now a risk asset, and its framework is completely different from before.

In this new framework:

First, if the stock market performs well next year and the liquidity environment for the US dollar is relatively loose, theoretically gold will still have a relatively good upward space, at least in the medium to long term, it still has allocation value. Second, the wave of "interest rate logic dividends" brought by the Federal Reserve's interest rate cuts has already been largely consumed in the early stages, and we cannot simply explain future trends with "US Treasury yields falling = gold rising sharply."

For me, a more reasonable understanding now is:

Gold's future performance will more follow risk assets, especially it will be more "synchronized" with the performance of the AI sector, rather than simply moving in the opposite direction of the US dollar.

So from my asset allocation perspective, gold has moved from the traditional "safe-haven asset" category to the "risk asset" category.

Q10: Regarding technology and AI, you judge that they will be the main line in 2026. But there is a lot of discussion about the "AI bubble" now, what do you think?

Zhou Hao:

• The AI bubble is like true love: the direction is correct, and the twists and turns are inevitable.

I have always used a very relatable analogy to view this matter:

"AI is like true love. The direction is right, so we will steadfastly move forward. The bubble is the twists and turns that must be traversed before reaching the destination."

I once saw a small article in "Reader": a girl listed the advantages and disadvantages of her boyfriend, writing a bunch of disadvantages—such as not being in the same city, not earning much right now, etc.—but for each disadvantage, there was a corresponding "can be solved in the future." In the "advantages" section, there was only one sentence: "I love him."

I think AI is such an existence:

First, AI is a certainty in direction, and I have no doubt about that.

There will definitely be problems along the way: issues with business models, issues with profit paths, questions about whether valuations are too high;

There will be phases of excessive optimism and phases of excessive pessimism.

But as long as the direction is correct, these twists and turns are essentially "the cost of the journey," not "the denial of the endgame."

Second, rather than getting tangled up every day about "whether there is a bubble," it is better to focus more on:

When corrections occur at certain stages, can you treat it as an opportunity to re-acquire positions?

From an investment perspective, I prefer to emphasize:

If a certain adjustment brings the valuation of AI assets back to a more "attractive" level;

Then for investors, this is actually a moment worth paying more attention to.

Thirdly, for me personally, AI is a direction that must be highly researched and heavily invested in. I do not give a conclusive definition to "bubble"; I only say:

At certain points in time, bubbles may indeed appear in certain areas;

But this actually provides a window for long-term investors to position themselves.

Q11: From the perspective of ordinary investors, how should assets be allocated in 2026 to maximize returns?

Zhou Hao:

• The best investment is always: investing in yourself

This question will always be repeatedly asked by everyone.

My first reaction has actually remained unchanged:

For ordinary people, the best investment is always investing in yourself.

Ordinary people are unlikely to take out 10 million and casually go all in on a stock, but almost everyone can and should continuously invest time and resources to improve themselves within their capabilities.

The title "Lychee of Chang'an" itself carries this meaning:

Sending lychees to Chang'an is a very arduous task;

But in this process, the person is also being "trained" and "shaped",

Ultimately becoming a better version of themselves.

• A simple framework for asset allocation

If I must give a more specific suggestion for major asset classes, my thinking is:

First, for most ordinary investors:

Consider 80% in fixed income assets and 20% in directional risk assets.

Fixed income assets may not make you a lot of money, but they are unlikely to lead to significant losses;

That 20% is your judgment on direction, a portion you are willing to accept volatility for the sake of higher potential returns.

Second, if you find that you have been doing well in recent years:

You can try to increase the aggressive portion from 20% to 30%, for example, making it "70% fixed income + 30% aggressive".

From my perspective, 2026 will not be fundamentally different from 2025; this year’s good market still has many people who haven’t earned their deserved returns, which itself indicates—

A significant part of what determines your "investment performance" is whether you have grown on this path;

And not just the macro environment or how much the index has risen.

• Using AI in the matter of "investing in yourself"

Finally, I want to emphasize:

Read more books, read more newspapers;

Use AI for some learning and experimentation, even if you spend a little money to let AI help you write some small code or create a small program you like; Many times, a very small idea is enough to change a person's career trajectory.

So if I were to give ordinary investors a piece of advice for navigating through 2026, I would say:

On one hand, use a simple yet disciplined framework for asset allocation; on the other hand, invest in yourself more systematically—make yourself the "asset" that is most worth holding long-term.

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