A dovish momentum for the end of the year

Risk assets remain on a positive momentum as the Fed delivered its first rate cut of the year; equity markets are up for the 3rd consecutive week with some sector and geographical dispersion, credit spreads tightened and volatility is still depressed across the board (10-day realized vol of SPX is 5%, MOVE to its lowest since 2022). Our Risk Perception Index (NXSRRPI Index) is steady below 20%. The key market drivers remain AI momentum and hopes for a real Fed cutting cycle while recession risk remains on the back front.The FOMC meeting was the key event of the week. Our key take-aways are: i/ no jumbo cut (a disappointment for both equity & bond markets), ii/ the revised dot plot adds 2 more cuts of 25bps this year in line with market pricing (Oct & Dec.), iii/ as explained by J. Powell at Jackson Hole, the Fed sees more risk in the US job market for now versus inflation… but it seems to be a close call: the new SEPs show upward forecast revisions for core PCE and GDP growth for 2026 and downward revision for unemployment rate, and the dots dispersion is extreme for 2026… J. Powell described the cut as a “risk management” move towards more neutral rate and repeated the Fed remains fully data dependent. See our US team Takeaways. This means that market disappointment for aggressive rate cuts is somehow likely for early 2026 in my view (implied OIS rate for Dec 26 is 2.95%…) if US activity remains solid… Finally, S. Miran was the only one voting for a 50bp-cut (Waller and  Bowman did not) and is a clear outlier in the dots, which can be seen either as a sign of FOMC independence and/or of increasing odds for Miran to be a serious candidate for being the next Fed chairman.