Timing and Path of the Fed's Monetary Policy Shift: Impact on the U.S. Economy and Asset Valuations in 2025-2026

• Three Rate Cuts and Current Level: In 2025, the Fed has cut interest rates three consecutive times, bringing the federal funds rate down to 3.5%-3.75%. Fed Chair Powell stated that rates have reached a “neutral” level (neither stimulating nor restraining growth) and expects one more 25-basis-point cut in 2026. [1][2]
• Official Divisions and Miran’s Stance: Internal divisions have widened over three meetings. Stephen Miran advocated for larger rate cuts (preferring 50 basis points) in each meeting, reflecting rising internal concerns that restrictive rates “significantly hinder the economy”. His term expires on January 31, 2026, but he may stay until a successor is confirmed. [1][3]
• Dot Plot vs. Market Expectations: The official dot plot shows only a 25-basis-point cut in 2026; markets expect more easing (two cuts: one in mid-year, one in Q4), indicating traders believe weak employment may force the Fed to ease earlier and more aggressively. Swap markets imply the end of this easing cycle may be around 3.2%, below the upper limit of the Fed’s estimated neutral level. Traders are positioning options to bet on possible unexpected easing in Q1. [2]

• Economic Resilience: The U.S. economy maintained strong growth in 2025, defying recession expectations, with consumption and corporate investment (especially AI-related data center investments) as key supports. Goldman Sachs expects global stock markets to deliver a total return of about 15% in 2026, with S&P 500 earnings growth of about 12%, and the market entering an “optimistic phase”. [0][4][5]
• Forecast Indicators: Vanguard forecasts 2026 GDP growth of about 2.25%, with the unemployment rate falling from 4.6% to 4.2%. Powell’s median forecast is similar (GDP ~2.3%, unemployment rate 4.4%). Inflation remains above target, with PCE expected at around 2.6%, still short of the 2% target. [1][6]
• Inflation and Employment: The latest dot plot reflects委员们’ greater focus on weak employment, but supply-side factors like tariffs keep inflation sticky. The Fed emphasized cautious wording on “magnitude and timing”, meaning the easing pace will slow and be more data-dependent. [1][2]

• Equity Valuations (Tool Data): The S&P 500 (12-month forward PE ~22.3) and Nasdaq (~36x) are in historical high ranges. Excluding the top seven tech giants, the PE is still ~20.2x, which is not low. Earnings will be the main driver of returns in 2026 (Goldman Sachs: S&P 500 EPS +12%). [0][5]
• Bond Market (Tool Data and Web Data): As of early 2026, the 10-year U.S. Treasury yield is ~4.19%, the 2-year ~3.457%, and the 30-year ~4.798%. Markets expect rate cuts in 2026 to push down long-end yields, but inflation stickiness may limit the decline. If the easing pace is faster than market expectations, long-duration bonds will benefit from valuation elasticity. Traders’ option positions have priced in Q1 rate cut risks. [0][2]
• U.S. Dollar: The U.S. dollar is under medium- to long-term pressure due to the rate cut cycle and twin deficits. However, if non-U.S. central banks ease more aggressively or safe-haven demand rises, the dollar may strengthen阶段性. The dollar’s trend has a key impact on gold and emerging market assets. [2][7]

• Easing Continuation vs. Slower Pace: If the Fed坚持 “hawkish rate cuts” (only 1-2 times), U.S. stock valuation expansion will be limited, and earnings will be the main driver. If weak employment forces faster and deeper easing (as advocated by Miran), there will be more room for valuation re-rating, but the risk of reignited tail inflation will also rise. [1][2][5][7]
• AI Dividend Diffusion and Sector Rotation: In 2026, AI benefits will spread from core tech giants to broader industries (industrials, materials, finance, etc.). The profit contribution of the top seven tech stocks to the S&P 500 will decline, while earnings growth of the remaining 493 companies will increase. Structurally, the “growth + value” style will become more balanced, and the valuation and earnings recovery elasticity of non-U.S. markets are worth attention. [4][5][7]

• Easing Pace and Yield Curve: If rate cuts meet market expectations (two cuts, moderate pace), the 10-year yield may trend downward with volatility (central axis around the 3.75%-4.25% range). If the pace is faster and longer-lasting, the 10-year yield may move toward ~3.2%; conversely, if inflation rebounds, there is upward risk to yields. [2]
• Credit Bonds and Spreads: In a soft landing scenario, investment-grade credit bond yields have allocation value; high-yield bonds need to警惕 credit spread widening due to weak employment. Historical experience shows that soft landing rate cut cycles often benefit bond risk assets. [2][7][8]

• Gold: Economic weakness, rate cut expectations, and political/geopolitical risks jointly support gold prices. UBS targets a price of ~$3,700 per ounce by June 2026, indicating gold’s safe-haven and hedging value when easing continues and uncertainties coexist. Additionally, silver has broken above $60 per ounce, showing linkage in the precious metals sector. [7]
• Commodities: Cyclical sectors (raw materials, energy) are affected by supply-demand rebalancing and capital expenditure cycles. Fed easing cycles usually benefit commodity prices, but the extent depends on global demand and supply constraints. Policy pace and supply shocks like tariffs will have differentiated impacts on energy and industrial metals. [1][7]

• Rate Cuts and Twin Deficits: The medium- to long-term logic of U.S. dollar pressure remains unchanged. However, if the Fed cuts rates slower than expected or non-U.S. central banks ease more, the dollar may strengthen阶段性. Emerging market currencies and assets are sensitive to the dollar’s path; the Fed’s policy pace will affect capital flows and carry trade environments. [2][3][7]

• Liquidity and Market Sentiment: Bank of America points out that cryptocurrencies are sensitive to liquidity changes and historically react first to the Fed’s easing shift. If the Fed is forced to cut rates faster due to employment pressure, cryptocurrencies may become a leading indicator of risk sentiment recovery. However, their volatility and regulatory risks remain significant, making them more suitable for investors with higher risk tolerance. [7]

• Soft landing scenarios often benefit risk assets (especially high-quality growth stocks and credit bonds), but there are differences due to cycle stages and macro backgrounds. For example, some cycles show that stock markets continue to strengthen months after the first rate cut and credit spreads narrow; others experience volatility due to delayed fundamental confirmation. [8][7]
• The easing cases before the 2000 tech bubble and at the end of 2018 remind us: when valuations are high and earnings expectations are revised downward, easing does not necessarily reverse the market immediately; we need to comprehensively judge based on fundamentals, credit cycles, and liquidity environments. [7][8]

• Equities: Focus on earnings quality and valuation protection; pay attention to industries and regions benefiting from AI dividend diffusion (non-U.S. markets, cyclical and financial sectors). Tech leaders still have AI investment and capital expenditure spillover effects, but need to关注 valuation and fundamental matching. Structurally consider a balance of “growth + value”. [4][5]
• Bonds: Neutral to long duration but control interest rate risk exposure. Investment-grade credit bonds and high-quality Treasuries provide income and defense. If expecting a faster easing pace than the market, moderately increase long duration to lock in interest rate downward gains; otherwise, focus on medium-short duration. Pay attention to credit spreads and employment data. [2][7][8]
• Alternative Assets: Gold hedges against political and tail inflation risks; commodities are supported by supply-demand rebalancing; cryptocurrencies are highly sensitive to liquidity and suitable for tactical allocation under high risk appetite and rising Fed easing expectations. The weight and specific allocation ratio of alternative assets should be carefully evaluated based on investors’ risk tolerance. [7]

• Political Pressure and Fed Independence: Trump continues to pressure for rate cuts; new chair appointment and board member changes increase policy uncertainty. If excessive easing is done for political considerations, it may reignite inflation and force subsequent sharp tightening, leading to the risk of policy reversals. [1][3][7]
• Inflation Stickiness and Tariffs: Supply-side factors like tariffs make the path of inflation falling to 2% more tortuous; if there is renewed pressure from energy, housing, or wages, the Fed may be forced to slow the easing pace or even pause. Employment data will be the core indicator to observe the Fed’s attitude. [1][2]
• Employment and Financial Fragility: If the unemployment rate rises faster than expected or credit conditions tighten suddenly, the Fed may be forced to cut rates faster to hedge against growth downside risks. At the end of 2025, some officials mentioned the “unusual balance” in the labor market; weak employment may be a trigger for accelerated policy shifts. [1][2]
• External Shocks: Global elections and geopolitical risks may affect U.S. asset valuations through exchange rate fluctuations, capital flows, and commodity prices. Emerging market assets are sensitive to external shocks. [2][3][7]

• Shift Timing: Based on official speeches and dot plots, the policy path will become clearer in the first half of 2026, but the specific pace is still highly data-dependent. If employment data continues to weaken, there is a possibility of faster easing in Q1-Q2; if inflation is more sticky, the easing pace may be delayed. [1][2]
• Path Characteristics: The base case is “hawkish” gradual easing (1-2 times). If employment deteriorates or inflation falls faster, the path may tilt toward “dovish” accelerated easing; otherwise, the pace will be slower. Markets have partially priced in more optimistic easing scenarios; expectation gaps will bring volatility. The interaction between policy pace and inflation/employment remains the core variable for asset pricing. [1][2][7]

• The current federal funds rate is already in the Fed’s estimated “neutral” range; the key in 2026 lies in the relative strength of employment and inflation data. Internal “hawkish” and “dovish” divisions reflect different assessments by policymakers of the restrictive程度 of interest rates. If weak employment prevails (as warned by Miran), a faster and deeper easing path will benefit long-duration bonds, gold, some liquidity-sensitive growth stocks, and cryptocurrencies; if inflation stickiness dominates, the probability of valuation pressure, rising long-end rate risks, and阶段性 dollar strength increases. Investors should conduct structured allocation around earnings quality, valuation protection, and liquidity sensitivity, and closely track Fed policy signals and macro data to flexibly adjust duration, sector, and regional exposure.

[0] Jinling API Data (including market indices, valuations, etc.)
[1] Reuters - “Fed’s Miran says he will likely stay after term ends until his seat is filled” (https://www.reuters.com/business/finance/feds-miran-says-hell-likely-stay-after-term-ends-until-his-seat-is-filled-2025-12-22/)
[2] Yahoo Finance (Hong Kong) - “聯儲局連續三次減息 鮑威爾稱息口已達中性” (https://hk.finance.yahoo.com/news/聯儲局連續三次減息-鮑威爾稱息口已達中性-190014789.html), “Fed連三降後利率怎麼走？” etc. (https://hk.finance.yahoo.com/news/fed連三降後利率怎麼走-陸券商-最快明年3月再降或先觀望半年-014104412.html)
[3] Forbes - “China’s Chaotic 2026 Makes This The Worst Job In Economics” (https://www.forbes.com/sites/williampesek/2025/12/30/chinas-chaotic-2026-makes-this-the-worst-job-in-economics/)
[4] WSJ (Chinese) - “美国经济逆势强劲增长，打破悲观预测” (https://cn.wsj.com/articles/美国经济逆势强劲增长-打破悲观预测-c6eacc6e)
[5] Goldman Sachs 2026 Global Stock Market Outlook (reprinted by Yahoo Finance Hong Kong) (https://hk.finance.yahoo.com/news/高盛2026年全球股市展望-更廣泛的牛市-更廣泛的ai受益者-054004342.html)
[6] Investopedia/WSJ Economist Survey (reprinted by Yahoo Finance Hong Kong) - “這些經濟學家命中2025年走勢 他們如何預測2026年？” (https://hk.finance.yahoo.com/news/這些經濟學家命中2025年走勢-他們如何預測2026年-040004808.html)
[7] UBS/Bank of America and other institutions’ asset allocation views (reprinted by Yahoo Finance Hong Kong) - “美聯儲9月降息機率飆升至93%該如何佈局？瑞銀建議：黃金、科技股與優質債券” (https://hk.finance.yahoo.com/news/美聯儲9月降息機率飆升至93-該如何佈局-瑞銀建議-黃金-科技股與優質債券-023548897.html), “美銀：聯儲局必須減息 比特幣等三大資產2026年將最受益” (https://hk.finance.yahoo.com/news/流動性斷供危機逼近-美銀-fed必須降息-比特幣等三大資產2026年將最受益-204002062.html)
[8] Institutional retrospective analysis of historical rate cut cycles and stock-bond performance (relevant charts and report summaries from search results) (https://hk.finance.yahoo.com/ etc.)