TD Securities: The Fed will reach a neutral interest rate later

TD Securities said that the latest market reaction after Trump's victory shows that the market expects a combination of tax cuts and tariffs to push up the Fed's neutral interest rate. We are changing our forecast for the Fed because rising inflation will lead to a slower pace of rate cuts in 2025. We now expect the Fed to cut interest rates by 25 basis points each in November, December and January, and then pause in March. The Fed will continue its "cut-pause-cut" pace in 2025, lowering interest rates to 3.5% by the end of 2025, which is higher than the previous expectation of 3.0%. In the first half of 2026, the Fed will cut interest rates to 3.0%, which means that we have not seen any changes in the neutral interest rate, but that the Fed will get there later. (Jinshi)