By Divya Chowdhury and Bansari Mayur Kamdar
DAVOS, Switzerland (Reuters) – The chief investment officer at Guggenheim Partners forecast on Monday that the U.S. Federal Reserve is likely to cut interest rates roughly every quarter in 2025, taking the reduction to around 75 basis points or even a full percentage point this year.
The Federal Reserve will continue to cut, although at a slower pace than expected, Guggenheim CIO Anne Walsh said at the Reuters Global Markets Forum at the start of the World Economic Forum’s annual meeting in Davos.
Traders’ bets have moved in recent days to just one Fed rate cut this year, with the possibility of a second cut in play, compared with at least three a month ago.
The tariffs that incoming President Donald Trump is expected to impose are probably not as severe as most expect, Walsh said, as long as the dollar remains strong as a reserve currency and the United States continues to attract capital.
Walsh expects tariffs, on average, to rise by less than 10% across the board and to become more country-specific.
After a strong bull run through 2022, the bond market is now trading in a range for the third year, Walsh said, and the volatility within it makes it interesting.
“If we get to 5% on the 10-year, that’s extreme, and that’s an oversold position, that’s a full buying opportunity,” Walsh said, adding that bond yield spreads could remain tight. which will also be good for US stocks.
He expected stocks to continue gaining on positive global themes such as artificial intelligence (AI), energy and the reshoring of manufacturing in the US, and that the S&P 500 would generate returns of 8% to 10% for end of 2025.
Walsh said there was some uncertainty about Trump’s policies and what his incoming administration will actually implement, and also the risk of the US economy slowing more than currently predicted.
“It’s like a game of ping pong… between politics and politics, and that’s going to create a lot of volatility around our (investment) themes this year,” Walsh said.
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(Reporting by Divya Chowdhury in Davos and Bansari Mayur Kamdar; Editing by Alexander Smith)