Anders Faergemann 

Welcome to the PineBridge Podcast, where we will be discussing the improving US growth picture that we see developing into the first half of 2026 supporting our “out of consensus” calls for fewer fed cuts in 2026 and a stronger US dollar. We've just concluded our strategy meetings for the month. We outlined a new base case of stabilization, that is stabilization across growth, inflation and monetary policy. I'm Anders Faergemann, Head of Global Sovereigns and Economics. With me is Hani Redha, Head of Research and Strategy for Global Multi Asset. So Hani, I've been listening to your assessment of the economic outlook, and you sound more and more confident in your view that we are due to see a pickup in US economic growth from February next year. Can you explain the rationale behind your optimism?

Hani Redha

Sure Anders, so look, we've been highlighting that the leading indicators in the US have been improving since the May lows, and more data, recent data has been a bit softer, so the picture that seems to be emerging is one where we had a mini shock in April that led to a sharp drop in activity and confidence. We then saw a pretty vigorous bounce off that low in July and August. 

Now we're seeing a bit of normalizing, and I think you can continue to see that, maybe for the rest of this year, a kind of muddling through, if you will, as firms still need to navigate through this new tariff regime, but as we look into the first half of next year, we still see good reasons to expect better data as both fiscal and monetary tailwinds kind of kick in. I think in particular, something that is underappreciated by the market is that consumers will be getting a decent amount of tax refunds in the US and they're going to be backdated to 2020/25. 

So from February through April, they'll be getting more than $230 billion worth of refunds, which should help to offset the hit, you know, from gradually rising prices, from tariffs, but net will leave the consumer better off and able to kind of get through this more difficult period and come out stronger. And at the same time, obviously, we have the Fed cutting a few more times, which is going to support easier financial conditions. Notwithstanding the recent jitters around credit events, we think financial conditions are still pretty conducive for  the US to get through this more negative policy mix of tariffs and clamp down on immigration. 

I think that's going to fade, and we're going to see more stable growth ahead with an actual boost to growth in the first half, which you know, for me, leaves the long end of the curve a bit more vulnerable. And that's pretty consistent with what we've been saying, although, yes, I acknowledge that we've, we've seen a pretty sharp rally as those credit concerns picked up over the last few weeks. So that's how I would summarize it. Anders, how does that fit into what others were seeing in the strategy discussions?

Anders Faergemann 

Yeah, thanks for that, Hani. Before I go into the discussion, I'd just like to outline our new global macro scenarios. So, as part of our annual recalibration, we presented a base case for the next 12 months as well as the usual four alternative scenarios. Within those alternatives is a bear case and a bull case, but also two tail risk scenarios. 

But let me just take you through the base case and outline the rate implications for that which helps us provide a playbook for the year ahead. So, at the center of our current assumptions is a view that the combination of easier monetary policy and positive fiscal impulse will create higher and more stable demand in 2025 and partly overshadow any supply constraints from tariffs and immigration cuts. 

So while these latter two factors will weigh on the economy in Q4 as you highlighted, albeit with diminishing effect, easier financial conditions and growth inducing policies will help stabilize growth in 2026 and interestingly, as you point out, the fiscal impulse will turn more positive in relation to the tax refunds from February onwards. 

And we now expect the US economy to grow between one and a half to two and a half percent in 2026 at the high end of market expectations, even so, inflation will decline from above 3% towards two and a half percent. That's more mechanical, albeit very slowly. But overall, inflation will act as a dampener on the Fed's maneuver room to cut rates, much beyond the two cuts that are baked in for the rest of 2025 and inflation overall will remain sticky. 

So in the first part of the year, we see the usual residual factors stemming some of the decline in inflation, and potentially in the latter part of 2026, inflation will become a bigger problem if the Fed over emphasizes the current softness in the labor market and reduces interest rates too much. So ideally, in our opinion, the Fed should cut just two more times this year and only one time, so three in total for the next 12 months, and this was also part of the discussion around the risks to our central scenario. 

So, we are where the Fed has pivoted towards a shortfalls approach, which emphasizes employment over inflation and creates an asymmetric policy profile which makes the Fed more front loaded. But what surprised me in the investment discussion was that we found a small majority within the team seeing bigger risks to our base case as one of stronger growth. So again, tilting the risk towards fewer Fed cuts and long end yield staying elevated even more despite the Fed cuts. 

So this led me to conclude, or led us to conclude, that we could see more action around the curve shape, rather than the level of 10-year rates. In fact, if we look at our three middle scenarios, we view 10-year rates as practically range-bound between 4% and four and a half percent. I know we are flirting just below 4% as we speak, but overall, over 12 months in our census scenario, we have a rate forecast in the 10 year at four and a quarter. 

So 425, a year of no major swings, rate stability, but potential for trading around the curve shape. And with that view, we affirmed our Euro dollar forecast at 115 but Hani between us, I think we feel we're saying that the Euro is close to topping out here, and could top out in Q4 and then with the stronger growth in the first half of 2026 that could pave the way for a stronger US dollar contrary to market consensus. Let me pass it over to you. What are your thoughts on the market implications from our new global macro scenarios, and what could we potentially be missing?

Hani Redha

Yeah, I think the way that we've characterized the scenarios where the bulk of the probability distribution is not very significant, for the range, for the tenure, makes a lot of sense to me, because, you know, I think 2025, was the year of very big impulses making their way through the economy as we had a big policy shift, as I said, tariffs and immigration were very significant impulses that were propagating through the economy, both in terms of growth and inflation. You know, unless we get something like that, which, you know is very difficult to predict, and so not part of our core scenarios. But unless we get something along those lines, we're looking at a year with less impulses driving conditions to be either significantly tighter or looser in either direction. 

And so, I agree with you, I think that the action in rates markets will be much more in terms of the shape of the curve and overall, I think when we also bring in the view that there's a lot of optimism around growth in Europe, and we're starting to see some potential for that to slip, execution risk on the fiscal side in Europe also skews things in the direction of us saying, “look, it is an environment to be buying dips in the dollar and I think positioning makes that risk reward look pretty attractive to me”.

Anders Faergemann  

Thank you. Hani, that's all very clear and actionable. I will just repeat what you just said, in terms of that, we’re getting more confident out of consensus calls for US economic growth to pick up. And that underpins our call for a pause in Fed easing from, let's say, Q2 onwards in 2026 and the renewed support for the US dollar and this buy dips mentality we favor. With that, we'll be back next month. For more information, please visit pinebridge.com. Until the next time, thanks for listening.

ENDS