"Even if the Federal Reserve's (Fed) fight to lower inflation weakens, there will be no rate cuts within the year." BlackRock, the world's largest asset management firm, drew a line against the growing market expectations for a benchmark interest rate cut.
According to Bloomberg and others, BlackRock Investment Institute (BII) strategists, including Chief Investment Strategist Wei Li, stated in a weekly client note on the 28th (local time) that "there will be no rate cuts this year." They diagnosed, "It is an old playbook for central banks to rush to rescue the economy when a recession hits. Now, they are causing recessions to fight inflation, which lowers the possibility of rate cuts."
In particular, BlackRock strategists assessed that major central banks, including the Fed, have already made it clear that they will not stop their tightening moves by raising interest rates even after the recent Silicon Valley Bank (SVB) crisis. The European Central Bank (ECB), which was the first to make a rate decision, implemented a big step (a 0.5 percentage point increase in the benchmark rate) despite the SVB and Credit Suisse (CS) crises. Following this, the Fed, the Bank of England (BOE), and the Swiss National Bank (SNB) also joined the rate hike parade.
Chief Investment Strategist Wei Li emphasized, "The Fed has entered a stage of showing more cautious policy moves," but added, "In other words, the fight has weakened, but there is still no rate cut." He analyzed that only if a much more severe large-scale credit crunch and recession occur than currently expected would the Fed consider the rate cut card within the year.
He also emphasized through his LinkedIn that tools for financial stability and tools for price stability are distinct. This aligns with the remarks of Mohamed El-Erian, Chief Economic Advisor at Allianz, who previously advised the Fed to continue its tightening policy by saying, "The two tools should not be confused." El-Erian also warned that if the Fed stops its rate hike moves due to the SVB crisis, it could pay a bigger price.
BlackRock's diagnosis on this day contrasts with the pivot expectations that rapidly spread in the market after the SVB crisis. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market most strongly reflects the possibility that the Fed will start cutting rates from July or September. In the bond market, many traders are betting on cuts within the year, and the inversion spread between the U.S. 10-year Treasury yield and the 2-year Treasury yield has noticeably narrowed compared to early this month.
Regarding this, BlackRock expressed concern, "Investors are too confident about the Fed's rate cuts," and warned, "They may pay a price later." They also supported preferences for Treasury Inflation-Protected Securities (TIPs) and reducing the weighting of developed market equities.
However, TD Securities, DoubleLine Capital, and others still place weight on rate cuts within the year. They have criticized the Fed for misjudging rate hikes, pointing to recession concerns. Jeffrey Gundlach, CEO of DoubleLine Capital, known as the "Bond King" of Wall Street, said in an interview with CNBC the day before, "A recession is imminent," and predicted "there will be two rate cuts this year."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
