After years of plane analogies, we’re now back to porridge - US rate cut ushers in Goldilocks environment

Sebastian Mullins, head of multi-asset and fixed income for Schroders: Australia, writes that markets are rejoicing as they price in a new US rate cutting cycle combined with above trend growth. But even if the porridge is just right, Goldilocks would scoff at the price.

September saw all assets rally – equities, government bonds, corporate credit, currencies, commodities and gold all rose over the month. This was thanks to the US Federal Reserve (Fed), who resumed their cutting cycle at the September meeting, cutting rates by 25 basis points to a target range of 4.00 to 4.25%. The weaker than expected non-farm payrolls convinced the Fed that an insurance rate cut was necessary to help avoid an increase in unemployment. However, outside of the job market, the US economic backdrop continued to see improvements.

US economy running hot

US second quarter GDP was revised upwards to 3.8% and personal consumption was revised higher to 2.6%. This increase in household spending occurred despite a higher savings rate, as real wage growth remained strong. Producer prices rose 3.3% over the year, the highest increase since 2022, led by services as opposed to tariff-related goods. Composite Purchasing Manager Indices (PMIs) continued to improve, financial conditions continued to ease, and corporate earnings revisions are turning more positive.

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