The Federal Reserve has likely finished the heavy lifting of its easing cycle. With the Fed funds rate hovering between 3.5% and 3.75%, the bond market signals that monetary policy has found its equilibrium.
That stability offers a clear playbook. Ashok Varadhan, co-head of Global Banking & Markets at Goldman Sachs, suggests staying long risk assets and the front end of the curve. Speaking in an interview released Monday, he argued that while the central bank is calibrated correctly, a lingering bias to ease provides a safety net if economic output falters.
Political shifts defined much of the past year. The speed at which the administration executed its agenda, particularly regarding tariffs, caught markets off guard. While those moves slowed the moderation of inflation, price pressures are still gliding lower.
A cooling labor market remains the primary risk to that outlook. Varadhan pointed to Federal Reserve Chair Jerome Powell’s recent admission that payroll figures were likely overstated by roughly 60,000 jobs a month. But investors sweating the looming change in Fed leadership are wasting their energy.
“I think it’s a little bit overblown. Whoever takes the role will likely adhere to the same data-dependent calibration that currently guides the central bank.”
— Ashok Varadhan, Goldman Sachs
The AI Buildout Enters a New Phase
The market’s obsession with artificial intelligence is entering a new phase. The initial frenzy over hyperscalers and data center construction is giving way to a “consumption” story. The year ahead will be defined by how non-tech companies deploy these tools to boost efficiency and productivity.
This buildout requires massive capital. The resulting flood of issuance in the corporate credit market could widen spreads, but Varadhan views this as a healthy “self-correcting mechanism” rather than a systemic threat. If financing becomes too expensive, the market naturally curbs excessive build-outs.
Currency markets have already corrected for the shifting rate environment. After a period of depreciation, the greenback should stabilize simply because global capital has few other attractive homes.
“The US is sort of the place to be.”
— Ashok Varadhan, Goldman Sachs
Politics will likely pivot toward affordability in 2026. Following a year of deregulation and trade barriers, the administration is expected to tackle the cost of living. Despite potential policy volatility, the depth of US capital markets allows them to absorb shocks and adjust rapidly.
For traders, the enduring lesson of the post-pandemic era remains unchanged.
“You just should have bought every single dip.”
— Ashok Varadhan, Goldman Sachs