Russell Investments' outlook for this week's Federal Reserve meeting is clear: the US economy is experiencing a rare combination of robust growth alongside weak employment gains, making the Fed's interest rate decisions particularly challenging and leading to internal disagreements on how much policy "insurance" to provide.

Nevertheless, they still expect the Fed to cut rates by 25 basis points this week, but the rate cut will have a "hawkish" tone—the policy statement and subsequent communication will be cautious in order to prevent the market from forming overly dovish expectations.

Moreover, this round of easing will not be too aggressive. Russell Investments expects rate cuts to slow or stop by early 2026, with the terminal rate settling around 3.25%-3.5%, which is more conservative than some of the more optimistic views in the market.

Corresponding investment advice is that the current 10-year US Treasury yield is around 4.1%, already above fair value. Long-term rates may decline in the future, and bond prices are expected to rise, so investors are advised to allocate more duration risk assets in their portfolios.

Interestingly, the 10-year US Treasury yield rose to a multi-month high of 4.16% before the meeting, which is quite unusual and may indicate market concerns about persistent inflation or the US fiscal outlook. Precisely because of these concerns, even if the Fed cuts rates, it will need to maintain a hawkish stance to preserve its anti-inflation credibility.