Nomura forecasts that the new Fed Chair will lead a rate cut in June; however, as the U.S. economy recovers, there may be strong opposition within the FOMC against further rate cuts. This policy divergence could not only undermine market confidence in the new Chair but also trigger tensions between the Federal Reserve and the Trump administration. This uncertainty is expected to peak between July and November next year, during which a trend of 'flight from U.S. assets' may emerge in the markets.
Nomura Securities warned that as the new Federal Reserve Chair is set to take office in May next year, the U.S. market could face severe tests in the following months. Questions surrounding the leadership of the new chair and potential policy frictions may trigger a sell-off of dollar-denominated assets, leading to pressure on the U.S. equity and bond markets in the second half of next year.
According to Futubull, Nomura strategist Naka Matsuzawa recently noted in a report that although the market broadly anticipates a rate cut led by the new chair in June, the subsequent policy path remains highly uncertain. As U.S. economic data shows clear signs of recovery, strong opposition to further rate cuts may emerge within the Federal Open Market Committee (FOMC). This policy divergence could not only erode market confidence in the new chair but also spark tensions between the Federal Reserve and the Trump administration.
This uncertainty is expected to peak between July and November next year. Nomura’s analysis suggests that during this period, a trend of 'flight from U.S. assets' may emerge, resulting in declining Treasury yields, a correction in U.S. equities, and a weakening dollar. Investors should be cautious about potential liquidity reversals during this time, as major global economies may halt rate cuts or even begin raising rates, thereby diminishing the relative attractiveness of dollar-denominated assets.
Market 'High-Risk Period' from July to November
Matsuzawa predicted that while the new Federal Reserve Chair is expected to be appointed in May and push for a rate cut in June, this move may encounter resistance. In the context of clear economic recovery indicators, FOMC members may strongly oppose further rate cuts after June.
If the Federal Reserve maintains interest rates unchanged after the June meeting, it will inevitably clash with Trump, who demands further rate cuts to boost sentiment ahead of the midterm elections. This policy deadlock, compounded by signals of inflation bottoming out and the Fed ending its rate-cutting cycle, will become a key catalyst for the sell-off in U.S. stocks and bonds and dollar weakness from July to November.
Nomura specifically pointed out that if market confidence in the new chair has yet to be established, and the Trump administration faces a 'lame duck' risk after the midterm elections, the pace of capital outflows from U.S. assets could accelerate.
New Chair Appointments Often Accompanied by Market Turmoil
Nomura's historical review indicates that markets experienced varying degrees of volatility when each of the last four Federal Reserve Chairs took office.
The most notable case was the 'Black Monday' crash of 1987, which occurred just two months after Alan Greenspan assumed office. The report argues that this historical pattern reflects deep concerns about policy continuity and the capabilities of new leadership.
Regarding this transition, Nomura specifically highlighted that the market strongly fears Trump may intervene in the Federal Reserve's personnel appointments to align with his reflationary policies. If the new chairman is perceived as being too 'dovish' in policy stance or as yielding to government pressure, efforts to regain market trust might force a suppression of overt dovish positions, thereby increasing the risk of market volatility.
Global capital may be diverted from U.S. assets
From a broader asset allocation perspective, Nomura forecasts that the global economy will experience a significant recovery in 2026, with market drivers shifting from 'excess liquidity' to 'corporate earnings.' In such an environment, while U.S. assets may not see a substantial decline in absolute terms, their relative advantage will gradually diminish.
The report predicts that as other major countries halt interest rate cuts or begin raising rates, the U.S. dollar will trend weaker. Particularly during the sensitive window in the second half of the year, doubts about the Federal Reserve's policy independence and a reassessment of the dominance of U.S. assets could jointly drive capital outflows from the U.S. market.
Nomura believes that compared to the first half driven by excess liquidity, the market logic in the second half will undergo a fundamental shift, with U.S. stocks and bonds no longer holding absolute dominance.
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