Neil Birrell, chief investment officer at Premier Miton, agrees that the latest communication from the Federal Reserve sends a signal that would boost sentiment among investors who with a higher tolerance for risk.
Daniele Antonucci, chief economist & macro strategist, at Quintet Private Bank agrees that rates may not rise from here, in his view the issues with the US banking system have prompted the pause, as they have the same impact as a rate rise.
The other problem for policy makers is that lifting interest rates could exacerbate the issues in the banking system, as higher rates might be expected to push down the capital value of long dated bonds.
As many banks hold a meaningful portion of their assets in just such long dated assets, a collapse in price impacts their solvency immediately.
Halting or cutting?
But halting further rate rises is a different scenario than actually cutting rates from here, according to Gabriele Foa, manager of the Global Credit Opportunities fund at Algebris Investments.
His view is that further rate rises are more likely than rate cuts right now, though his main expectation is that rates won’t change at all until the end of this year at least.
The extent to which markets are already investing as though rate cuts are inevitable is illustrated by Charles Hepworth, an investment director at GAM, who says that in his opinion asset prices presently reflect the possibility of two rate cuts this year.
Hepworth’s view is that economic conditions may deteriorate in the US in the coming months and that may force the Federal Reserve to cut interest rates.
Salman Ahmed, global head of macro and strategic asset allocation at Fidelity, takes a similar view, arguing that while the Federal Reserve will need to communicate as though no rate cuts are coming as inflation remains above target, but Ahmed believes that a minor recession “remains the high likelihood scenario.”
Steven Andrew, a multi-asset fund manager at M&G, says markets have stopped fixating on the interest rate and inflation policy.
In part, this because investors feel the deterioration in credit conditions resulting from the stresses in the US banking system that have already happened, has had the same impact as higher rates would.
He says credit growth has essentially stopped, and that is something which typically only occurs when a recession has already happened.
