The Fed will cut in December and again in 2026 as economy turns ‘sluggish’
The Federal Reserve will likely cut rates again in December amid growing evidence that parts of the economy are slowing, according to Anne Walsh, chief investment officer at Guggenheim Partners Investment Management.
“I’m on the side where I believe they’re going to make cuts in December,” Walsh said on Yahoo Finance Invest 2025. “Because I look at the Fed Beige Book and it seems to point to a lot more slowdown and attrition, especially around the edges.”
The $357 billion asset manager is watching the “bifurcated economy” closely, Walsh said; Here, lower-income consumers and small businesses suffer while richer people and large corporations prosper.
Read more: What is a K-shaped economy and what is causing the divide?
“As a result, you have a two-speed economy,” he said. “The Beige Book really represents this broader level of the economy and it’s really getting a lot slower.”
These signs of weakness would push the Fed to adopt a lower neutral rate, possibly around 3%, and cut interest rates further, he said.
“I also still maintain that we will see further rate cuts in 2026,” Walsh said.
After cutting interest rates at the end of October due to labor market concerns, some Fed officials say the prospect of another rate cut in December is less clear. Traders view the odds of a 25 basis point decline next month as roughly 50-50, according to CME FedWatch.
Walsh said he believes the finalists President Trump is considering to be the next Fed Chairman are all “highly qualified,” but he would prefer someone with an economics background for the role.
“Regardless, I think we are facing a more dovish Fed composition,” he said.
He said low interest rates and tax benefits from the One Big Good Bill Act should keep the United States out of recession. He said the economy is late in the cycle but not yet in a recession, and he’s not worried about signs of overvaluation in AI stocks because unlike during the dot-com bubble era, today’s companies are making money and so far aren’t taking on as much debt to finance their expansion.
“I think there’s a lot more to be done in this market, and I think technology will continue to drive stock market performance,” Walsh said.
Claire Boston He is Yahoo Finance’s Senior Reporter, covering homeowners, mortgages and home insurance.
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