Fidelity International stated that the Federal Reserve indicated a reduction in the risks of inflationary pressures and an increase in the risks of a labor market downturn, deciding to cut interest rates by 0.5%, lowering the target range for the federal funds rate to 4.75% to 5.00%.

This marks the first rate cut since July 2023, after eight consecutive months of maintaining the policy rate at 5.25% to 5.5%, ending the most aggressive rate-hiking cycle since the 1980s.

The base scenario for the U.S. economy is a soft landing (low growth and low inflation), and it is expected that under the Federal Reserve's accommodative financial conditions, there should be no risk of recession.

However, due to increased political uncertainty and a slowdown in the Fidelity Leading Indicator, coupled with the emergence of negative seasonal factors, Fidelity is now looking for more ideal risk-reward opportunities.

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Therefore, it assigns a neutral investment rating to equities and maintains a neutral investment rating for credit bonds.

Given the signs of escalation in the Middle East and the Russia-Ukraine conflict, and as the U.S. presidential election enters its white-hot phase in November, the investment strategy suggests focusing on a global high-quality dividend strategy, paired with global high-quality bonds as the main core asset allocation, to counter market volatility, and has a positive long-term outlook for technology stocks.

The five key points of the Federal Reserve's post-meeting statement include: 1) Reduced risks of inflation progress: The post-meeting statement newly adds greater confidence in the inflation rate's continuous march towards 2%, coupled with the committee's firm commitment to supporting full employment and bringing the inflation rate back to the 2% target; the median forecast for the PCE inflation annual growth rate has been revised down from 2.6% to 2.3% for this year; from 2.3% to 2.1% for 2025; and the long-term level remains unchanged at 2%.

The median forecast for core PCE inflation annual growth rate has been revised down from 2.8% to 2.6% for this year; from 2.3% to 2.2% for next year.

2) Increased risks of a cooling labor market: The post-meeting statement adjusts the description of moderate employment growth to a slowdown in employment growth, indicating an increased risk of a cooling labor market.

The median forecast for the unemployment rate has been revised up from 4% to 4.4% for this year; from 4.2% to 4.4% for next year; and the long-term level remains at 4.2%.

3) Revision of this year's economic growth expectations: In terms of the Summary of Economic Projections (SEP), the median forecast for the economic growth rate has been revised down from 2.1% to 2% for this year; it remains at 2% for next year; and the long-term level is unchanged at 1.8%.

4) There is still room for a 0.5% rate cut by the end of the year: The interest rate dot plot shows that there is still room for a 0.5% rate cut before the end of the year, meaning that there may be a 0.25% rate cut at each of the November and December meetings; a 1% rate cut in 2025, and a 0.5% rate cut in 2026, with the long-term interest rate level adjusted up from 2.8% to 2.9%, and the neutral interest rate is likely to be higher than before the pandemic.

5) Future policy depends on data trends: Chairman Powell stated not to assume that the 0.5% rate cut is the new pace for future rate cuts, and future monetary policy still depends on the trend of economic data.

In addition, he indicated that the Federal Reserve is not considering stopping the reduction of the balance sheet, and it is possible to reduce the balance sheet and cut rates at the same time as long as bank reserves remain stable.

Fidelity International's Macro and Strategic Asset Team stated that this was a heated discussion about whether to cut rates by 0.25% or 0.5%, and ultimately the Federal Reserve decided to cut rates by 0.5% considering the continued downward adjustment of inflation and the cooling of the labor market in recent months; however, the Federal Reserve's rate dot plot and Powell's post-meeting press conference both emphasized that the pace and magnitude of future easing policies will be more cautious.

Overall, although the Federal Reserve has initiated the rate-cutting cycle with a 0.5% cut, its rhetoric is hawkish, and the Federal Reserve has opened the door to rate cuts, and the market understands that if the labor market weakens again, the Federal Reserve will accelerate the pace of rate cuts.

Fidelity maintains that a soft landing is still the most likely economic scenario for this year.