Daily Voice: Fed’s 2026 successor likely to stay dovish, push early rate cuts, says LGT’s Hofer

Stefan Hofer is the Chief Investment Strategist APAC at LGT Private Bank

After Federal Reserve's December policy meeting, in which the central bank announced third rate cut of the year, Stefan Hofer, the Chief Investment Strategist APAC at LGT Private Bank believes the successor Fed will likely maintain an easing bias in 2026, front-loading its rate cuts in first half of next year, he said in an interview to Moneycontrol.

According to him, the emphasis for policy makers will likely be more on preserving a low unemployment rate and less concerned about inflation, which would represent a major shift in policy-making.

On the global front, Stefan Hofer said the big wildcard for 2026 is whether the war in Europe can end, delivering a major peace dividend for markets.

Investors should expect China’s real GDP growth to be between 4.5% and 5% in 2026 – without significant additional fiscal easing or sharp monetary support. The oversupply in the real estate sector remains the key drag on the economy, but recent signals suggest higher inflation could materialise. This would be welcomed by investors and we see opportunities in China’s technology sector where valuations are considerably lower than in the US.

The catalyst for oil prices to move significantly higher would likely only be if China surprises the market with much stronger growth. This seems unlikely – furthermore, the US is pushing to increase crude supply in a bid to lower retail gasoline prices in 2026, in time for the midterm elections.

The transition to the post-Powell Fed is already underway. The successor Fed will likely maintain an easing bias in 2026, front-loading its rate cuts in 1H26.

Yes – the emphasis for policy makers will likely be more on preserving a low unemployment rate and less concerned about inflation, which would represent a major shift in policy-making.

The main challenge will be if inflation were to re-accelerate as the fiscal easing (from the One Big Beautiful Bill tax cuts) causes the economy heat up.

No. 2026 will see midterm elections in November and the Republican led Congress and White House will make an all-out effort to retain power, primarily through tax cuts.

This is a very difficult question. Arguably very few investors think that AI-related stocks are cheaply valued, thereby setting the stage for a correction. On the other hand, AI-stocks are leading the way with superior earnings growth. On balance, we think investors should be diversifying into strategies that are uncorrelated with long-only equity exposure.

We think that risk assets can still deliver positive returns in 2026 despite geopolitical tensions, tariffs and so on. For one, we expect US import tariffs to gradually fall as more bilateral trade deals are signed. The big wildcard for 2026 is whether the war in Europe can end, delivering a major peace dividend for markets.