According to Morgan Stanley’s Chief Investment Officer Lisa Shalett, the Federal Reserve is expected to cut interest rates again in November, but policymakers are proceeding cautiously due to stubborn inflation. Speaking at a recent forum, Shalett noted that while the labor market remains mixed, the Fed has shifted away from aggressively pursuing its 2% inflation target.Fed Treads Carefully on Rate CutsShalett emphasized that the Fed's focus has shifted to the labor market, indicating that inflation is no longer cooling fast enough to warrant aggressive cuts.Most Fed policymakers are aligned with further rate reductions in the coming months. However, Atlanta Fed President Raphael Bostic suggested that a rate cut might be skipped in November, highlighting cautious sentiment.Economic Data Signals Modest InflationRecent data reflects persistent inflationary pressure:CPI inflation rose slightly more than expected in September, while PPI growth remained flat.September jobs data and other positive economic indicators have shifted market expectations from a 50 basis point cut to a more modest 25 basis point cut during the Fed’s Nov. 6-7 policy meeting.Traders now assign an 89% chance of a 25 bps rate cut in November, with bond markets beginning to rally as inflation expectations are priced in.Political Uncertainty Adds Market VolatilityShalett noted that November 5 Election Day could bring further uncertainty, with polls showing Vice President Kamala Harris and former President Donald Trump tied in seven swing states.She cautioned that no clear election result may emerge immediately, adding to market volatility.Investment Strategies for a Volatile MarketGiven the current market conditions, Shalett recommends investors take shelter in real assets:Gold, commodities, real estate, and energy infrastructure assets offer protection from rising volatility.Hedge fund strategies focusing on market-neutral positions are also favored as a safeguard against unpredictable market conditions.
