Frederique Carrier, Head of UK and Asia Investment Strategy at RBC Wealth Management, discusses the Fed rate cut and her outlook for monetary policy with Bloomberg's Joumanna Bercetche on 'Horizons Middle East and Africa.'

A financial analyst has observed that current U.S. monetary policy does not appear to be restrictive, largely due to the effects of a significant federal deficit, which is estimated to be equivalent to multiple interest rate cuts. The analyst noted that there is little evidence in borrowing markets to suggest that policy is constraining economic activity, and that borrowers continue to have market power.

The conversation also addressed expectations for future Federal Reserve actions, highlighting that changes in board composition could influence policy direction. Despite some concerns about the U.S. dollar's strength and institutional credibility, the analyst believes that equity markets could continue to reach new highs if investor confidence in corporate earnings remains strong.

Carrier: Monetary policy not restrictive at the moment

the market price action suggested that what the Fed actually delivered yesterday was a hawkish cut. Where do you stand on that debate? There's a little bit for everyone in this meeting, isn't there? So lowering interest rates twice this year, people are looking at the dot plot. But as you mentioned, 2026, 2027, fewer cuts and market expectation of the terminal rate has increased just very slightly. I think it's fair to say that it's difficult to see monetary policy as being very restrictive at the moment. It has to be taken into the context of a federal deficit, which is equivalent to between three and five cuts already. And there is very little evidence in the borrowing market that monetary policy is restrictive. It seems there's a lot of evidence that borrowers have market power. So I think people, probably investors, are still scratching their head with this message and are aware that while the unemployment picture is not great, it's really monetary policy is a blunt instrument to deal with it. We think there's more of a mismatch in terms of what corporations need compared to what the skills which are available. Let me pick you up on what you just said there, that the fiscal deficit is equivalent to, I think you just said, four or five rate cuts, i.e. there is a sufficient amount of fiscal loosening in the economy. Is that enough to keep the Fed from engaging in an aggressive rate cutting cycle? Is that what you're trying to say? So yes, we think between three and five rate cuts is the equivalent of this loose fiscal policy at the moment with the tax cuts and other fiscal plan. And so monetary policy has to remain relatively contained at the moment. We don't think it is restrictive, however. Yeah. Let's talk about the 2026 thoughts. I mean, there was some attention paid to the fact that Stephen Myron voted for 50 basis points yesterday, but then others, Waller, Bowman actually went with the majority and voted for 25 basis points. So perhaps you could say there was somewhat of a hawkish surprise there. But how much weight should we really put on what happens in 2026, given we know that the Fed chair Jerome Powell's term ends in May and the composition of the Fed and who's voting on the Fed is likely to change? The expectation is that President Trump will be appointing members to the Fed who are likely to be more dovish. Therefore, should we not read in too much about these 2026 dots and forecasts? So it's probably the reason why the terminal rate has been moved only slightly. There is this expectation that we will end up next year, particularly if Governor Cook is replaced with a much more dovish Fed board. And whilst for this particular meeting, the unanimity of the Fed board members surprised, it is very likely that we will have next year a Fed board which will be accused of political interference a lot more than it has in the past. In terms of market price action, really interesting that the dollar got a bid after this meeting. Do you think that that's going to hold? So it's a very small rally in the dollar. And given the recent weakness, it could be sustained, but we think it would be just temporary. We think that the market will focus again on the credibility and the strength of the U.S. institutions, and that will lead to a continued erosion of U.S. dollar dominance. Not an end to it, but certainly an erosion of it. Yeah. So it's interesting because on one hand, we talk about the erosion of confidence, perhaps questions around credibility, and that's manifesting or playing out via the USD. But at the same time, U.S. stock markets keep making record high after record high. Can that paradigm persist, i.e. investors have a very positive view of the outlook for U.S. companies, but at the same time a dismal view of the USD at a macro level? So we do think that there are still potential gains and that the equity markets could reach new highs in the coming months, so long as investors remain confident that the earnings for 2026 and its expectations can be achieved. And that seems to be the case. People going to results season being very cautious, expecting some restraints in terms of company comments. But what we are seeing is that, in fact, they are delivering. So, so long as this confidence remains, we do think that it's possible to have more gains in equity markets. Now, should, of course, yields at the long end start to increase too much, we might have to review this position.

Three Russian military jets violated NATO member Estonia's airspace for 12 minutes on Friday in an "unprecedentedly brazen" incursion, its government said, the latest in a series of recent military actions by Russia that have rattled the alliance.

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Tehran

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President Trump signed two executive orders at the White House on Friday night. The first established the Trump Gold Card as a path to U.S. citizenship for $1 million. The second adds a $100,000 fee for skilled worker visas called H-1B worker visas.

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Ukraine Invasion

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Protesters are clashing with federal agents outside an ICE detention facility near Chicago. Video shows what appears to be tear gas being deployed and some physical altercations.

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A spokesperson for the Taliban Foreign Ministry said the couple "violated Afghan law" and were released from prison on Friday after a court hearing but didn't say what law they were alleged to have broken.

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Three Russian MiG-31 fighter jets lingered in NATO-member Estonia's airspace for several minutes on Friday, according to Estonian authorities.

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