Written by Divya Choudhary and Pansari Mayur Kamdar
DAVOS, Switzerland (Reuters) – The Federal Reserve is likely to cut interest rates approximately every quarter in 2025, with the cut reaching around 75 basis points or even A full percentage this year.
The Fed will continue to cut interest rates, albeit on a slower path than expected, Anne Walsh, director of information technology at Guggenheim, told the Reuters Global Markets Forum at the start of the World Economic Forum’s annual meeting in Davos.
Traders’ bets in the past few days have moved the Federal Reserve to cut its interest rate just once this year, with chances of a second cut in the balance, down from at least three a month ago.
Walsh said the tariffs expected to be imposed by next President Donald Trump probably won’t be as punitive as most people expect, as long as the dollar remains strong as a reserve currency and the United States continues to attract capital.
Walsh expects tariffs to rise, on average, by less than 10% across the board, and to be more specific to each country.
After a sharp bull run through 2022, the bond market is now trading in a range for a third year, with volatility within this making it interesting, Walsh said.
“If we get to 5% over 10 years, that’s extreme, that’s an oversold situation, it’s a total buying opportunity,” Walsh said, adding that bond yield spreads could remain tight, which would also be good for U.S. stocks.
It expected stocks to gain more from positive global themes such as artificial intelligence, energy and the return of manufacturing to the United States, with the S&P 500 achieving returns of between 8% and 10% by the end of 2025.
Walsh said there is some uncertainty related to Trump’s policies and what is actually implemented by his incoming administration, as well as the risk that the US economy will slow more than currently expected.
“It’s like a ping-pong game… 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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(Additional reporting by Divya Chowdhury in Davos and Bansari Mayur Kamdar; Editing by Alexander Smith)