From the lame duck session to a new administration, how to think about rates, macro and the Fed ahead
At a Glance
The desk believes that the Federal Reserve is poised to implement another 25 basis point cut in December 2024, as outlined in MUFG's recent commentary on the macro landscape post-election. This anticipated move would complete a total of 100 basis points in cuts for the year, reflecting a dovish shift highlighted by the FOMC minutes that emphasize market functioning. Per the full note , the Fed's decision is likely influenced by the recent labor market trends, which show signs of deceleration, and the political context surrounding the election. The desk also anticipates further cuts in 2025, with a potential steepening of the interest rate curve as the market adjusts to the new administration's fiscal policies.
Key Takeaways
Full Analysis
What the desk is arguing
MUFG argues for a final 25bps cut from the Fed in 2024, marking an end to this year's total of 100bps in easing measures. They cite dovish signals from the FOMC and potential market volatility during a typically illiquid period as reasons to proceed with the forecasted cut, rather than risk political perceptions by deviating from prior guidance.
Supporting this view is the expectation that job growth will be limited, particularly in light of the data collection period occurring during the election week. Furthermore, the potential for additional cuts in 2025 hinges on economic performance and the response to new policies set forth by the incoming administration, encompassing a wide range of scenarios from acceleration to deceleration in growth.
Where it sits in our coverage
In alignment with MUFG's perspective, our consensus target is 1.075, with a projected range from 1.04 to 1.12 for the relevant currency pair. This position reflects a belief in a stable economic trajectory, despite varying signals from employment data and monetary policy.
Specific targets from other firms include: - JPMorgan: 1.10, Mar-26 - Barclays: 1.05, Mar-26 - Goldman Sachs: 1.12, Mar-26
How other firms see it
Some firms align closely with MUFG's cautious outlook. For instance, Goldman Sachs maintains a similar forecast regarding the Fed’s easing path and labor market expectations.
Conversely, firms such as Bank of America adopt a more conservative stance, arguing for lower targets based on anticipated economic weaknesses as outlined in their forecasts.
- Goldman Sachs: aligned
- Bank of America: contrary
Market Implications
If MUFG's projections are accurate, we may see a steepening of the interest rate curve beginning in Q1-2025 as the 2-year yield reacts to an ongoing easing cycle. This could lead to broader implications for FX pairs sensitive to U.S. interest rates, particularly if the Fed's actions result in increased market volatility or shifts in investor sentiment.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bearish | 1.1140 |
ABN AMRO | Bullish | 1.1500 |
Bank of America | Bullish | 1.1500 |
From the original
This week George Goncalves, MUFG Head of U.S. Macro Strategy, walks us through some of the key topics and our views from the November monthly report, US Macro2Markets Outlook: Markets feel adrift post-election, now what? George reiterates the house call that the Fed will likely d
Related speeches
4 itemsJanuary 2026 FOMC Preview - Dovish under pressure? (Podcast Edition)
The desk maintains a cautious outlook on the US economy as it navigates a bifurcated growth trajectory, with fiscal policies potentially obscuring underlying weaknesses in the near term. Per the full note [source], MUFG's George Goncalves highlights that stagnant labor demand will likely weigh on income and consumption growth in the latter half of the year. This dovish perspective contrasts with market expectations of a hawkish Federal Reserve that may not resume rate cuts until mid-2026. The desk's view aligns with a consensus target of 1.075 for USD/JPY, reflecting a nuanced balance between US economic indicators and global rate movements, particularly from Japan.
October 2025 FOMC Preview QT out, flexible reserves in… (Podcast Edition)
The desk anticipates a significant shift in monetary policy as the Federal Reserve is likely to cut rates by 25 basis points at the upcoming FOMC meeting, potentially signaling the end of its quantitative tightening (QT) program. Per the full note from MUFG EMEA, George Goncalves highlights the impact of the government shutdown and evolving US trade policy on these expectations. As reserves continue to dwindle, this meeting could provide clarity on the Fed's path forward, possibly concluding QT by year-end. This perspective aligns with our view that the Fed is pivoting towards a more accommodative stance, which could influence currency markets significantly.