In a series of interest rate steps, the US Federal Reserve raised the key interest rate from just above zero to 5.25 to 5.50 percent. But investors are now hoping for a turnaround – and are overlooking the consequences of the key interest rate increases, warns a market expert.
• Fed likely to pause interest rates again
• Market expert warns of delayed consequences of interest rate increases
• Even possible interest rate cuts do not have an immediate effect
The US Federal Reserve is changing with its monetary policy on a fine line. Although apply Key interest rate increases As a tried and tested remedy against inflation, if the monetary authorities raise interest rates too high too quickly, the economy can be seriously damaged and, in the worst case, there is a risk of recession. Fed chief Jerome Powell and the members of the central bank are acting accordingly cautiously – also at the communication level: After a break in interest rates, the US Federal Reserve left the door open for further interest rate increases: “Most participants continued to see significant upward risks for inflation, which could lead to further interest rate increases tightening of monetary policy may be necessary,” said the published minutes (Minutes) of the latest interest rate decision. However, there was no clear indication of further interest rate policy.
The first investors are betting on a turnaround in interest rates
Despite this, many market participants hope that the interest rate turnaround could be imminent in the foreseeable future. Market experts like Jeremy Siegel recently expressed confidence that there would be no further interest rate hikes by the Fed in September and November.
Fed Director Christopher Waller supported this hope, telling CBNC that recent economic data would allow the Fed to take a more relaxed approach to its next interest rate decision: “There’s nothing that suggests we need to do anything soon.” It looks like the US economy will have a soft landing – avoiding a recession, Waller added.
But despite the robust economic situation, there are some optimists who even have one Interest rate cut to consider something possible. A step whose consequences Stephanie Pomboy, the founder of Macro Mavens, recently warned in a Wealthion interview.
Investors forget the “pain before the pivot”
That the economy is showing signs of slowing and inflation is slowing has raised expectations among investors that interest rates will fall soon, but they will likely be surprised by the delayed impact of previous rate hikes, Pomboy warned.
The market expert emphasized that the damage caused by interest rate increases has a delayed effect. “The markets don’t seem to anticipate the pain before the pivot – they just anticipate the pivot,” the Macro Mavens founder said in a recent Wealthion interview. In her opinion, a Fed pivot, i.e. a change in interest rates by the US Federal Reserve, will initially be preceded by massive pain that many market participants currently do not want to see: “The effects on the economy and subsequently on corporate and household loans will be so severe “That interest rates will be drastically reduced,” continued Pomboy.
This market feels like it’s built on hope and very little on actual fundamentals, the market expert said, worried. Many households and businesses have committed to lower interest rates, but more households will soon have to service debts that require significantly higher interest payments, she noted. The “weakest links in the credit chain” are far more vulnerable than many people would think.
Even interest rate cuts do not have an immediate effect
In addition, in her opinion, even a change in interest rates would not have an immediate positive impact on the economy: “It takes a long time for people to get over the scars left by the downturn,” she said of the painful consequences of increased interest rates and an economic crisis downturn. “People are licking their wounds.”
Americans are likely to initially be cautious when it comes to borrowing, and they believe that hiring new employees and business investments will then only take place hesitantly: “After the real estate bubble burst, they refused to take out loans with their credit cards for a long, long time, at all. They were so disillusioned by this experience,” says Pomboy, explaining her prediction. “We will certainly experience such a time.”
Editorial team finanzen.net