We believe US economy is in a cooling state rather than a sharp deterioration or a recession kind of scenario which rates markets are pricing in. Interestingly US equities do not seem to price any recession being near their LTHs (Life Time Highs). This dichotomy might get resolved in favour of equities & bond yields should get repriced upwards post Fed meeting in our view. US employment looks to be cooling more due to high immigration than actual job losses, US disinflation looks to be stalling & US macroeconomic stability remains high with loose financial conditions. With this background, we believe Fed might go with a slow and steady rate cut of 75 bps by end CY24 & 125 bps by Mar25. With the kind of fiscal deficit being run by US government currently & likely to continue whether democrats or republicans win, we do not see the need for monetary support for the economy especially when equities are doing well & most of the economic indicators remain firmly in growth phase with a strong US consumer as well as corporate balance sheet.
