MARKET OUTLOOK - U.S. Monetary Policy Enters a New Phase

Forex - Lars Mouland from Nordea stated that U.S. monetary policy has entered a new phase where interest rate cuts are dependent on lower inflation or a weaker labor market. The chief credit and interest strategist Mouland remarked that the Fed's rate path is close to the levels that Nordea considers fair, but there is a risk that rates may be higher than this. "The market is currently pricing very close to our neutral view that long-term rates are around 4%," Mouland said, arguing that if inflation does not return to 2% as some Fed members currently fear, interest rates will need to be set in a restrictive range. Money markets are currently pricing in approximately a 40 basis point Fed rate cut for 2025.