Skip to content

CONTRIBUTORS

Sonal Desai, Ph.D.

Chief Investment Officer,
Portfolio Manager

I had the opportunity to discuss my year-ahead outlook on the latest Wall Street Journal “Take on the Week” podcast. We covered a broad range of issues, including the outlook for inflation, Federal Reserve (Fed) policy and bond yields; the uncertainty surrounding the new administration’s policies and the potential impact of tariffs and immigration restrictions; the fiscal deficit and its implications for issuance and yields; the outlook for the dollar and a lot more.

A few highlights:

  • Given sticky inflation, recovering productivity and a strong economy, Fed funds rate is already in the neutral range. The Fed has to claw back prudence now, and I think it will likely stay on hold for the first half of the year and might well be already done with rate cuts.
  • My baseline is for inflation to end the year around current levels. Much will depend on how the policy mix shapes up: tariffs and immigration restrictions could put some temporary pressure on inflation, but streamlining of regulations and greater government efficiency should have the opposite impact, as well as boosting growth.
  • There is quite a bit of cognitive dissonance in the proposed policies: persistent loose fiscal policy points to higher rates, not lower; and tariffs would contribute to a stronger dollar, not weaker.

For a detailed and lively discussion of these issues and more, here is the link to my interview with the Wall Street Journal:

WSJ Take on the Week: Will the Fed cut interest rates again? What investors should know.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal. 

Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Active management does not ensure gains or protect against market declines.

IMPORTANT LEGAL INFORMATION

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. All investments involve risks, including possible loss of principal. There is no guarantee that a strategy will meet its objective. Performance may also be affected by currency fluctuations. Reduced liquidity may have a negative impact on the price of the assets. Currency fluctuations may affect the value of overseas investments. Where a strategy invests in emerging markets, the risks can be greater than in developed markets. Where a strategy invests in derivative instruments, this entails specific risks that may increase the risk profile of the strategy. Where a strategy invests in a specific sector or geographical area, the returns may be more volatile than a more diversified strategy.

This site is intended only for EMEA Institutional Investors. Using it means you agree to our Anti-Corruption Policy.

If you would like information on Franklin Templeton’s retail mutual funds, please visit www.franklinresources.com to be directed to your local Franklin Templeton website.

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.