Russell Investments' Global Chief Investment Strategist Paul Eitelman's latest report indicates that due to tariffs and geopolitical risks in the Middle East, the Federal Reserve may keep interest rates unchanged throughout the summer. He emphasized that Federal Reserve Chairman Powell remains vigilant about the economic downside risks triggered by tariffs, even though current inflation is stable and weakness has not yet shown up in the data. Eitelman predicts that there may be 1-2 rate cuts before the end of 2024, but the specific timing depends on the transmission effects of tariffs and the evolution of conflicts.

Analysis by Qin Ge

Core Logic: The Federal Reserve's "data dependence" is essentially a trade-off between inflation stickiness and economic risks. Current core service inflation (housing + healthcare) remains high at 4.1%, and in historically similar cycles, rate cuts have averaged a 6-month delay. If Trump's rolling tariffs are implemented, they could push CPI up by 0.8%-1.2%, but three conditions must be met to trigger a rate cut:

1. Tariff costs are transmitted to end prices (July PPI is key);

2. Consumers accept price increases (Michigan sentiment index falls below 60);

3. Unemployment rate exceeds 4.5% (current 4% resilience exceeds expectations).

Market Misjudgment: The simultaneous rise in stocks and bonds implies contradictory expectations—betting on rate cuts (bond market pricing September probability at 67.3%) while believing in a soft landing (S&P 500 price-to-earnings ratio at 24 times). However, in the 8 stagflation cycles since the 1970s, the probability of simultaneous declines in stocks and bonds exceeds 70%, and the current "golden girl" narrative is fragile.

Response Strategy:

Defensive Phase (until August): Allocate to 1-3 year U.S. Treasuries (yield 4.8% + low interest rate sensitivity) and gold (hedging political risks, Trump's policy uncertainty index at 82);

Breakthrough Window (after September): If rate cuts begin, prioritize 30-year U.S. Treasuries + tech stocks; if inflation rebounds, shift to energy stocks + floating-rate bonds.

Ultimate Risk: A stagflation scenario with simultaneous GDP contraction and inflation stickiness may force the Federal Reserve to maintain high interest rates for an extended period, triggering a wave of corporate debt defaults. Cash is king + volatility hedging is the key survival rule.