Vanguard Predicts Cautious FOMC Approach to Rate Cuts Amid Global Risks and Potential Tail Risks in US Economy

Vanguard, the world’s second-largest asset manager, is predicting that the Federal Open Market Committee (FOMC) will be less aggressive with rate cuts. This expectation is based on global risks such as a potential rebound in price pressures and signs of stubborn inflation in the US. The firm’s global head of rates believes that the US economy will experience a “deferred landing,” characterized by continued economic growth and higher inflation levels than desired by the Federal Reserve, but not high enough to warrant interest rate hikes.

However, Vanguard also warns of potential tail risks such as a rebound in inflation or a weakening in economic growth. In addition, the firm is cautioning against potential fiscal profligacy in the future. Vanguard believes that if either of the presidential candidates campaigns on a platform of fiscal expansion, it could have a significant impact on the markets. Given this warning, Vanguard anticipates that both candidates will likely focus on fiscal expansion as part of their campaigns.

Overall, Vanguard’s insights suggest a cautious and watchful approach to the current economic and market environment, as uncertainties and risks continue to exist.