Stefan Hofer, Chief Investment Strategist APAC at LGT Private Bank, noted that new Fed Board Governor Miran voted for a 50 basis point reduction in rates. "While in the minority, this underscores that the Fed may be moving incrementally more dovish in its stance," he said in an interview to Moneycontrol.
He believes the US dollar has now entered a long-term bear market, expecting to weaken by another 4 to 5% against most major currency pairs over the coming 12 months.
In case of India, he remains confident that economic growth path will remain high over the medium term. "India can deliver real GDP growth of +6.5% over the coming years," he said.
How do you interpret the cut in the Fed funds rate? Do you expect monetary easing to continue in the final two meetings of 2025?
The US Federal Reserve’s policy rate cut of 25 basis points was fully in line with market expectations. Whether more cuts will follow in 2025 will largely depend on the trajectory of the labour market, where further weakness is expected. The headline unemployment rate of 4.3% is not alarming, but below the surface we know that segments of the labour market, namely fresh college graduates, are struggling to find work.
While monetary policy cannot specifically target such issues, the bias is now for monetary easing to address slow job creation, and less so inflation.
Is the Federal Reserve prioritizing the labour market over inflation?
In short, yes. The Federal Reserve maintains a dual mandate that balances between the target of full employment and stable CPI, but it is worth noting that concerns since April 2025 that US inflation would surge due to new import tariffs have not materialised.
Ultimately, if inflation were to surge later on, then the Fed may have to slow the pace of rate cuts. However, it seems that the more likely scenario is a progressive decline in CPI over 2025-2026, keeping the rate cutting cycle in place.
What is your take on Powell’s recent commentary?
Chair Powell’s commentary did not yield any particular surprises. We note that new Fed Board Governor Miran voted for a 50 basis points reduction in rates. While in the minority, this underscores that the Fed may be moving incrementally more dovish in its stance.
Do you believe the US dollar has now entered a long-term bear market?
Yes. LGT Wealth argues that the US dollar will weaken by another 4 to 5% against most major currency pairs over the coming 12 months. This is driven in part by the Trump Administration’s public commitment to a ‘weak dollar’ policy, as well as lower interest rates, high government debt and fiscal deficits.
That said, we see room for the US equity market to perform well even as the dollar weakens, due in large part to superior corporate earnings delivery relative to peer stock markets.
Are US equity markets extremely overvalued at current levels?
The valuation of US equities is not necessarily cheap based on historical metrics, but this needs to be set against the ongoing boom in Artificial Intelligence (AI) capex spending, which may boost productivity and profitability faster than most or even all other markets.
We believe investors will pay a premium for these developments in the US corporate sector.
Do you see a bubble forming in US AI stocks?
It is worthwhile to note that in the second quarter of 2025, the after-tax profits of the combined Magnificent Seven tech stocks exceeded $140 billion. At the same time, capex spending in the US has been re-accelerating, with arguably a large portion of that spending geared towards technology. Such trends suggest to us that AI as an investment theme has more room to run.
Are you structurally bullish on gold?
The LGT twelve month forecast on Gold is $3,900 per troy ounce. We see Gold as being a useful hedge against inflation, the weakening US dollar and geopolitical risks.
Do you expect the India–US deal to be finalised before the end of 2025?
We remain optimistic that the US and India will finalise a trade deal that will see current high tariffs addressed in some form, before the end of 2025.
Do you believe India remains the strongest structural growth story in the world?
Important structural reforms (for example, GST harmonisation) and the ongoing infrastructure boom reinforce our belief that India can deliver real GDP growth of +6.5% over the coming years.
At the same time, falling CPI may enable the Indian central bank to lower interest rates, supporting higher credit growth. Overall, we remain confident that India’s economic growth path will remain high over the medium term.
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