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of federal reserve BlackRock strategists say the U.S. rate cut is unlikely this year despite recent turmoil in the banking sector, disappointing investors who bet big on such a scenario.
“We will not see rate cuts this year. This is the old strategy of rushing to bail out the economy when the central bank hits a recession,” BlackRock said in it. weekly notes to the client. “Right now, the recession is causing us to fight sticky inflation, which makes a rate cut less likely.”
The memo comes shortly after Fed officials issued another 1/4 point rate hikeThis lifted the benchmark fund rate into the 5% range from 4.75%, the highest level since 2007. This was the ninth straight rate hike aimed at combating high inflation.
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Pedestrians near the Treasury Department Building in Washington, DC, December 30, 2022. (Photographer: Ting Sheng/Bloomberg via Getty Images/Getty Images)
According to CME Group’s FedWatch Group, market prices indicate that the central bank will approve another quarter percent rate hike at its May meeting. However, traders expect the Fed to start cutting Federal Funds rates as early as July, eventually cutting them by as much as 1 percentage point by the end of the year.
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Fed officials have been adamant that they are not considering cutting rates this year, even though the rapid rise in interest rates played a direct role in the string of bank failures in early March.
“Participants expect relatively modest growth and a gradual return of supply and demand in the labor market to a gradual decline in inflation.” Fed Chairman Jerome Powell told reporters in Washington last week. “The most likely thing is that if that happens, participants will not see rate cuts this year.
Federal Reserve Chairman Jerome Powell arrives to testify before the Senate Banking Committee in Washington, DC, March 7, 2023. (Photo by (Wynn McNamee/Getty Images)/Getty Images)
BlackRock, which manages about $10 trillion in assets, said there were still signs of price pressure in the economy, noting that inflation was “not yet on track” to settle at the Fed’s 2% target. The Labor Department announced earlier this month that consumer price index February was up 0.4% from the previous month, up 6% on an annual basis. This is about three times the pre-pandemic average.
Core prices, on the other hand, rose faster than expected, up 0.5% over the course of February.
“We believe the Fed will be able to cut rates priced in by the market only if a deeper credit crunch takes hold and triggers a deeper recession than expected,” strategists said.
Fed policymakers said it was too early to say how stress in the banking sector would affect the economy as a whole.
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“Financial conditions appear to be tightening, perhaps even tighter than traditional indicators suggest,” Powell said. “But the question for us is how important is it? How much is it and how long will it be?
“We will see how serious this is and if it looks like it will persist.
