The US Federal Reserve dealt a severe blow to widespread hopes of a rate cut in March. But there are hardly any disadvantages from this wait-and-see attitude, reassures Rick Rieder, investment expert at BlackRock.
• US Federal Reserve holds soon Interest rate cut for little probable
• Fed Chairman Powell wants to wait for further inflation data
• BlackRock expert expects first key interest rate cut in May
In the fight against historically high inflation, the US Federal Reserve has raised its key interest rate from near zero to 5.25 to 5.50 percent since March 2022 – the highest rate in more than two decades. With success: After eleven interest rate increases in a row, inflation is now well below the 40-year high of 9.1 percent that it reached in the summer of 2022. The annual rate was 3.4 percent in December 2023, bringing it significantly closer to the Fed’s medium-term target of 2.0 percent.
That’s why the market is now assuming that the interest rate peak has been reached, with many even hoping for an interest rate cut at the next central bank meeting in March. But now Fed Chairman Jerome Powell has announced that a rate cut is unlikely any time soon. However, we have to wait and see, he said.
Rate cuts “sometime” in 2024
On Wednesday evening, the US monetary authorities decided, as expected, to leave the key interest rate at which commercial banks can borrow central bank money at a range of 5.25 to 5.5 percent for the fourth time in a row. On this occasion, Powell stated that current interest rates have “probably peaked” and raised the prospect of possible rate cuts “sometime this year.”
In December, the Fed signaled around three interest rate cuts in 2024, raising hopes of an initial easing as early as March. But now she made it clear that she was not yet ready to lower interest rates. “Inflation is still too high and further progress in reducing it is not assured,” Powell said after Wednesday’s meeting in Washington. He considers it unlikely that there will be enough confidence to cut interest rates by March – “but that remains to be seen,” he added.
This reluctance may also be due to the fact that the recent good economic data has reduced the pressure on the Fed to quickly and significantly reduce interest rates. According to an initial estimate by the US Department of Commerce, the gross domestic product (GDP) grew by an annualized 3.3 percent in the fourth quarter, while economists had previously only expected an annualized increase of 2.0 percent. As a result, the risk of a recession has decreased.
BlackRock: Fed has no reason to rush
One person who believes the cautious approach of the monetary authorities is right is Rick Rieder, CIO of Global Fixed Income and Head of the Global Allocation Investment Team at the world’s largest asset manager BlackRock. “I still think that March is too early,” the expert said in a telephone interview ahead of the Fed meeting, according to “MarketWatch”.
Given the surprisingly strong US economic growth, but also solid retail sales and employment, he sees no reason for the Fed to cut interest rates. “For the Fed to take action in March, I think we need data that shows a more significant deterioration in the economy than we’re currently seeing,” Rieder said.
Despite easing inflation pressures, the expert believes that the US Federal Reserve may want to wait a few more months of data before deciding to move interest rates. He argued in a very similar way to Fed Chairman Powell’s later argument. According to Rick Rieder, the monetary authorities “can still wait until May”. Rieder’s forecast: “My base scenario is that from May onwards they will cut by 25 basis points every other meeting.”
In the current environment of an “economy operating at a good level” and inflation above the Fed’s target of 2 percent, Rieder sees “not many disadvantages” in the fact that the monetary authorities are still patiently waiting to lower interest rates. The Federal Reserve is “not in a race to lower interest rates,” the expert emphasizes.
Editorial team finanzen.net
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