Fed Meeting Preview: Russell Investments Expects a "Hawkish Rate Cut" of 25 Basis Points This Week, with Terminal Rate Possibly Reaching 3.25% by 2026

Russell Investments recently released a report stating that the Federal Reserve faces a "tough choice" with this week’s rate decision. The firm points out that the US economy is experiencing a rare combination of "robust growth alongside weak job growth," which has led to internal disagreements within the Fed on how much policy "insurance" is needed.

Despite the complex situation, Russell Investments still expects the Fed to deliver a 25 basis point rate cut, but emphasizes that the move will be distinctly "hawkish." This means the Fed’s policy statement and subsequent communications will likely use extremely cautious language to clearly rein in any excessive market expectations for further easing.

Paul Eitelman, Chief Investment Strategist for North America at Russell Investments, predicts this round of monetary easing will be both prudent and limited. He expects the Fed to slow or halt rate cuts in early 2026, with the terminal rate settling in the 3.25% to 3.5% range—a more restrained outlook compared to some of the more optimistic market forecasts.

In line with this policy path, the report also provides clear investment guidance. Eitelman notes that the current 10-year US Treasury yield is about 4.1%, already above the estimated fair value.

Therefore, Russell Investments recommends that investors strategically increase their allocation to duration risk in their portfolios, suggesting they foresee room for long-term rates to move lower in the future, which could in turn drive bond prices higher.

This analysis comes as subtle shifts emerge in the US Treasury market. On the eve of the Fed's meeting, the 10-year Treasury yield has instead risen to around 4.16%, a multi-month high, which is rather unusual historically and may reflect deeper market concerns about inflation resilience or fiscal outlook.

The report also notes that even if the Fed decides to cut rates, it must maintain a "hawkish" stance to preserve its anti-inflation credibility—an essential backdrop to Russell Investments’ core judgment.

#罗素投资 # Hawkish Rate Cut