Daily Voice: Fed to implement 100 bps interest rate cuts by 2026, to bolster US economy, says DBS Bank

With plans for higher reciprocal tariffs and more sector-specific tariffs slated to begin on August 1, Joanne Goh of DBS Bank anticipates a further rise in US inflation.

To counteract the increasing risk of stagflation, DBS Bank projects that the Fed will implement 50bps interest rate cuts in both 2H-2025 and 2026, aiming to bolster the US economy, she said.

On India, she believes infrastructure-related sectors, such as capital goods and construction, are expected to continue outperforming, driven by sustained public sector investment.

However, private sector capex may remain subdued due to lingering demand-side uncertainty and ongoing trade tensions, which could weigh on industrial and export-oriented segments, said the Senior Investment Strategist at DBS Bank in an interview to Moneycontrol.

What is your overall assessment of the Trump-era tariffs?

The Trump administration’s tariff strategy marked a decisive departure from the norms of multilateral trade diplomacy, introducing a transactional, coercive, and often unpredictable approach that reshaped global economic relations. While the stated goal of these tariffs was to strengthen US industry, reduce trade imbalances, and secure fairer market access abroad, their real-world impact proved to be more complex.

At their core, the tariffs aimed to recalibrate America’s trade relationships by applying pressure on partners to lower barriers, remove subsidies, and open markets to US exports. Economically, the impact was mixed. While the tariffs heightened inflationary pressures and risked recession, they also exposed vulnerabilities in overly interdependent supply chains.

This awareness encouraged systemic reform and more nuanced trade policy planning among both developed and emerging economies. The long-term legacy of these tariffs may be less about economic damage and more about accelerating a global shift towards resilience, multipolar diplomacy, and careful recalibration of trade dependencies.

To navigate future trade challenges, a balanced approach that integrates assertiveness with collaboration may offer a more sustainable path forward. Regional blocs like ASEAN have adopted a more proactive role in global trade. Rather than escalating confrontation, ASEAN emphasised neutrality and multilateralism—deepening ties with China, the EU, and the Gulf Cooperation Council, and reinforcing its commitment to WTO principles through platforms like RCEP and AEC.

What is driving your current bullish stance on gold?

We remain constructive on gold despite the current wave of consolidation. There remains a multitude of long-term tailwinds for gold.

Firstly, central bank buying looks set to continue amid geopolitical fragmentation and de-dollarisation; the latest central bank survey conducted by the World Gold Council showed a record 95% of respondents believe official gold reserves will increase in the next 12 months.

Secondly, growing US national debt is eroding the attractiveness of the dollar and dollar assets, accelerating the impetus for investors to diversify away. Thirdly, heightened policy uncertainty in today’s environment is driving investors back into safe-haven gold. This is reflected in gold ETF flows, which have picked up substantially YTD.

There are also short-term factors that could potentially support gold prices, including a weaker dollar and surprise macroeconomic weakness, which would put Fed rate cuts back on the table.

As a subsequent follow-up question: Is silver an alternative?

We believe there is certainly room for other precious metals such as silver to grind higher, but we do not believe a shift away from gold is warranted from a portfolio perspective. Among precious metals, gold is the least exposed to industrial demand and remains the purest expression of a safe-haven asset.

As such, it is still the most optimal choice as a portfolio hedge. The reason gold maintains its place as our preferred portfolio risk diversifier is its well-established status as a store of value. This is reflected in the fact that many central banks worldwide hold gold and not other precious metals as part of their reserves.

Do you foresee rising inflationary pressures in the United States as a consequence of the tariffs? Given current growth concerns, do you expect the US Federal Reserve to begin cutting interest rates in Q4 2025?

The US appears to be experiencing mounting inflation pressures due to recently imposed tariffs. US CPI increased by 2.7% YoY in June, a noticeable rise from the relatively steady 2.3–2.4% range observed in the preceding three months. Trump’s announcement of 50% tariffs on US copper imports (effective August 1) has already caused a significant jump of approximately 25% in the premium of COMEX copper prices over LME.

With plans for higher reciprocal tariffs and more sector-specific tariffs slated to begin on August 1, we anticipate a further rise in US inflation. To counteract the increasing risk of stagflation, we project that the Fed will implement 50bps interest rate cuts in both 2H-2025 and 2026, aiming to bolster the US economy.

What is the rationale behind your high conviction call on US technology companies?

Our high conviction call on US technology companies is driven by a combination of structural growth tailwinds along with strong earnings momentum. The sector continues to benefit from accelerating demand in artificial intelligence, with Nvidia’s robust guidance reinforcing confidence in AI as a durable growth engine.

Despite macroeconomic headwinds such as tariff uncertainties, dollar weakness, and potentially inflated earnings forecasts across other sectors, US tech stands out with a forward gross margin of 55% versus 37% for the broader S&P 500 index, providing a meaningful cushion against tariff cost pressures. Earnings growth for US technology is projected at 27% in 2025, significantly ahead of the broader index at 11%, underscoring the sector’s earnings visibility and resilience.

Tech also maintains strong balance sheets and high free cash flow generation, allowing continued reinvestment and shareholder returns. These fundamentals, combined with sustained momentum and defensive growth characteristics, support our view that US technology remains a bright spot in an otherwise uncertain market environment.

With potential interest rate cuts and tax reductions in India, do you anticipate a strong earnings recovery starting from the December quarter? In your opinion, is India on track to achieve its 6.5% GDP growth target for FY26?

India’s GDP growth, while expected to soften slightly to a still robust 6.3% in FY26, is underpinned by strong structural fundamentals. The government has proactively extended policy supports, including a more accommodative policy, falling inflation, and targeted tax relief, to mitigate the impact of global economic headwinds. These measures are anticipated to stimulate demand, paving the way for a healthy rebound in corporate earnings during Q1FY26.

Sectors related to household consumption – especially those exposed to rural demand and urban discretionary spending – are poised to reap the rewards of these supportive policies. Meanwhile, infrastructure-related sectors, such as capital goods and construction, are expected to continue outperforming, driven by sustained public sector investment.

However, private sector capex may remain subdued due to lingering demand-side uncertainty and ongoing trade tensions, which could weigh on industrial and export-oriented segments.

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