Published by Future Star Securities – May 2025
After nearly two years of aggressive monetary tightening, new data emerging in Q2 2025 suggests the U.S. economy may be on track for a long-anticipated “soft landing.” This outcome—defined as inflation returning to target without triggering a deep recession—has renewed investor confidence in both equity and fixed income markets. Future Star Securities believes the probability of a Federal Reserve policy shift is rising, with the first rate cut potentially occurring as early as Q3.
Recent macro indicators have painted a more balanced picture. The core PCE inflation rate has cooled to 2.4%, job growth has remained steady (averaging 160,000 new payrolls per month), and consumer confidence has rebounded to its highest level since 2022. At the same time, manufacturing activity, as measured by the ISM index, has turned modestly expansionary for the first time in 14 months.
Federal Reserve Chair Jerome Powell, in his April testimony to Congress, acknowledged that “monetary policy is now restrictive enough to slow inflation,” suggesting that the central bank may pause further rate hikes and prepare for a gradual normalization. While the Fed remains cautious about declaring victory, futures markets have already priced in a 65% chance of a rate cut before September 2025.
For equity investors, this shift has major implications. A stable rate environment removes a major headwind for growth sectors, especially technology, consumer discretionary, and small-cap equities. In the past two months, the Russell 2000 index has outperformed the S&P 500 by over 3%, as market participants rotate into higher-beta names with greater sensitivity to interest rates.
“We’re entering a new phase of the cycle where policy easing could amplify earnings momentum,” said Marcus Taylor, U.S. equity strategist at Future Star Securities. “This is especially favorable for companies that were previously pressured by high capital costs and tight liquidity.”
Meanwhile, bond markets have also reacted positively. The 10-year Treasury yield has declined to 3.85%, while credit spreads have tightened, reflecting reduced default risk expectations. Investment-grade corporate bonds and municipal debt have both attracted inflows from institutional allocators repositioning for the next leg of the cycle.
Retail investors on the Future Star platform have increased their exposure to interest rate-sensitive instruments. ETF purchases focused on mid-cap growth and dividend strategies rose 28% in April alone, highlighting renewed appetite for balanced risk-taking.
Conclusion:
As inflation cools and economic momentum stabilizes, the Federal Reserve appears increasingly likely to shift toward a more accommodative stance in the second half of 2025. Future Star Securities recommends investors prepare for a new market regime—one that rewards strategic sector rotation, earnings resilience, and duration-aware positioning.