FOMC week

Everything seems to be ready for the FOMC meeting this week, that will end on Wednesday with a rate cut (currently the odds are 85%) to put the discount rate within the rage of 3.5-3.75%. The 2 year treasury bond, probably the best predictor of Fed funds, is already yielding 3.58%, right in line with the new expected range. As per the rest of major asset classes, if you look at the chart below, absent major changes, they will finish 2025 with strength, but with a different ranking than prior years: the Nasdaq stands below the EAFE stocks, gold is the number one asset by returns, and long term bonds are positive, at the bottom of the table, and still have not being able to come back from the drawdown of 2022. Investors seem to be positioned for a rate cut and have drank the cool aid of “no inflation despite tariffs”. In the meantime, the Supreme Court may rule against Trump’s tariffs and money may need to be returned (hard to see that under Trump, however) which affects the deficit, and therefore, long T-bonds, and therefore, every asset valuation.

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