Federal Reserve rate hike: One and done?

The Federal Reserve is likely to deliver one more rate hike before a prolonged pause, while softer inflation dynamics and resilient earnings keep the outlook constructive for risk assets.

• The Fed raised rates as widely expected, and its projections point to one further increase in December followed by a pause; Russell Investments broadly shares that view.
• Recent inflation pressure is partly linked to energy prices and the Middle East conflict, but wage growth has not accelerated meaningfully and the U.S. housing market remains soft, supporting gradual disinflation over the next 12 months.
• U.S. government bonds look more attractive after the repricing of interest rates, although sentiment has not become sufficiently dislocated to create a strong tactical buying opportunity.
• The Bank of England left rates unchanged and is expected to remain on hold for an extended period, while weak Chinese household and business credit demand points to growth of about 4% to 4.5% without enough weakness to trigger aggressive stimulus.
• Global equities were broadly unchanged through Thursday’s close, but the economic cycle remains resilient, corporate earnings have been robust over the past six months, profit margins are improving and AI-related capital expenditure is beginning to support operations.
• U.S. equities are more expensive than many international markets but not at extreme valuations, while sentiment remains close to neutral rather than euphoric or panicked.

Takeaway: The combination of limited further monetary tightening, gradual disinflation, resilient earnings and balanced sentiment supports a modest preference for equities, although investors should remain selective and should not yet treat government bonds as a strong tactical opportunity.