The world’s largest asset manager, Blackrock, is discouraging the Federal Reserve from cutting interest rates this year. “That’s the old approach when central banks would rapidly step in to protect the economy as recession hit. But they’re now promoting a recession to tackle stubborn inflation – and so we don’t anticipate rate cuts,” said the firm’s strategists.
Blackrock’s Interest Rate Outlook
Blackrock, the planet’s biggest asset manager, issued weekly commentary Monday discussing the condition of the U.S. economy and why it does not anticipate the Federal Reserve cutting interest rates this year.
Noting that “Markets have been quick to price in rate cuts as a result of the banking sector turmoil and the Fed signaling a coming pause,” Blackrock’s strategists wrote:
We don’t expect rate cuts this year – that’s the old way when central banks would quickly step in to prop up the economy as recession hit. But they’re now causing the recession to combat sticky inflation – and so rate cuts are improbable, according to us.
“Stocks have been resilient because of expectations for rate cuts that we don’t see happening. We think the Fed could only deliver the rate cuts priced in by markets if a more severe credit crunch developed and caused an even more profound recession than we’re expecting,” the strategists commented.
“Inflation is likely to prove even stickier than the Fed expects without a deep recession, in our opinion. The February U.S. CPI data confirmed our opinion that inflation is still not on track to settle at the Fed’s target,” they added.
The Blackrock strategists continued: “Recession is predicted as central banks attempt to bring inflation back down to policy targets. It’s the reverse of past recessions: Rate cuts are not on the way to aid risk assets, in our opinion.” They said:
In the U.S., it’s now evident in the financial cracks emerging from higher interest rates on top of rate-sensitive sectors. Higher mortgage rates have harmed sales of new homes. We also observe other warning signs, such as deteriorating CEO confidence, postponed capital spending plans and consumers depleting savings.
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