Despite elevated policy uncertainty, a solid economic backdrop implies this is still a risk-on investing opportunity. Our quarterly investment outlook highlights the themes and investment implications for the period ahead.
Key themes for 1Q 2025
A complex global picture is emerging, with significant divergence in growth and policy actions. While the U.S. continues to thrive, China and Europe are struggling. Proposed U.S. import tariffs threaten to intensify these diverging fortunes, reinforcing the U.S. exceptionalism theme. Policymakers will need to respond accordingly.
The U.S. economy remains resilient, but with pockets of weakness requiring careful watch. Strong household and corporate balance sheets have created a very resilient economy. Nonetheless, low-income households and small businesses are struggling, highlighting the need for further interest rate relief to prevent weakness from spreading.
The Federal Reserve will likely adopt a slower, more cautious approach to policy. Recent U.S. economic strength has combined with a rising threat of tariffs to increase upside inflation risks. The Fed is set to cut rates just a few times in 2025, likely hitting a floor of 3.75%. Interest rate relief will be shallow and restricted
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