NH: "U.S. Fed Raises Growth Outlook for Next Year... Favorable for Risk Assets"

With the U.S. Federal Reserve (Fed) cutting its benchmark interest rate for the third consecutive time at this year’s final Federal Open Market Committee (FOMC) meeting, analysts in the securities industry have suggested that, from a stock market perspective, attention should be focused on the potential for improved economic momentum next year. The upward revision of the U.S. growth forecast for next year by 0.5 percentage points in the dot plot is seen as favorable for risk assets.

On December 11, NH Investment & Securities researchers Ki-Tae Ahn and Jung-Hwan Na stated this in their report, “FOMC Considering AI Impact,” analyzing three key points from the latest FOMC and the resulting market strategies. The Fed lowered its benchmark rate to 3.50-3.75% at the FOMC held on December 9-10 (local time). This marks the third rate cut this year and the third consecutive cut.

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First, researcher Ahn assessed that this FOMC took into account the impact of artificial intelligence (AI), highlighting three main points: ▲ changes in the projections table (an upward revision of the 2026 Q4 growth forecast and a downward revision of the inflation rate), ▲ the Fed’s consideration of employment due to uncertainty about the effects of technological innovation, and ▲ the fact that the FOMC’s policy shift will come only after confirming productivity improvements.

He stated, “Future technological innovation may reduce employment, and this is difficult even for the Fed to predict,” adding, “The Fed is now considering employment stagnation and polarization issues resulting from technological innovation.” Because it is difficult to estimate the scale of job losses due to AI, it is expected that the Fed will prioritize the labor market over price stability, which are its two main objectives.

He also pointed out that there were no rate hike expectations within the FOMC. Researcher Ahn referenced the fact that the Fed raised rates in 1999 when productivity surged due to innovation investment, saying, “Since the launch of ChatGPT, the growth rate of labor productivity in the U.S. has been 2.2%, similar to the 1995-1997 period. If productivity improvements accelerate as they did in 1998-1999, a policy shift could follow.”

Researcher Na, who co-authored the report, assessed that with three consecutive rate cuts, the Fed has now entered a phase where it will monitor the effects of these cuts in the short term. He analyzed, “Given that Fed Chair Jerome Powell mentioned the current benchmark rate is within the estimated range of the neutral rate, the phase of precautionary rate cuts is nearing its end.” The dot plot suggests one additional cut next year. Furthermore, as Powell drew a clear line at the press conference by stating that “rate hikes are not the base scenario,” the New York stock market, which had been concerned about hawkish (tightening) remarks, closed higher on December 10.

In particular, researcher Na noted, “The fact that the 2026 U.S. growth forecast in the dot plot was raised by 0.5 percentage points is favorable for risk assets,” emphasizing the importance of economic momentum. He added, “After the FOMC, the dollar index fell from the 99 range to the 98 range, which could lead to downward pressure on the won-dollar rate and be favorable for supply and demand in the Korean stock market.” He continued, “From an industry perspective, it is important to pay attention to the potential for relative strength in IT, cyclical consumer goods, and industrials.”

This content was produced with the assistance of AI translation services.