The Fed has now cut interest rates 100 bps this year. In a strong economy where growth over the past two quarters has been 3.0% and 2.8%, see chart below, the Atlanta Fed expects GDP growth in the fourth quarter to be 3.2%, well above the CBO’s 2% estimate of long-run US growth.
The strong economy, combined with the potential for lower taxes, higher tariffs, and restrictions on immigration, has increased the risk that the Fed will have to hike rates in 2025. We see a 40% probability that the Fed will raise interest rates in 2025.
For investors, it is starting to look similar to 2022—too high inflation, rising interest rates, and falling stock prices.
The bottom line is that there are significant downside risks to the 60/40 portfolio as we enter 2025.
Source: BEA, Haver Analytics, Apollo Chief Economist
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