Vanguard doesn’t expect the Fed to cut interest rates this year, contradicting Fed officials’ view that the Fed is still on track to cut interest rates three times in 2024.
On Wednesday, as expected, the Federal Reserve kept interest rates unchanged for the fifth consecutive time, keeping its benchmark overnight borrowing rate in a range of 5.25%-5.5%.
The company also said it still expected a rate cut of a quarter percentage point by the end of the year.
The news helped fuel a market rally in the U.S. and elsewhere.All three major U.S. stock indexes closed at record highs on Wednesday, while Europe’s pan-European stock markets Stoke 600 The stock rose to a new all-time high on Thursday morning as investors cheered the prospect of multiple rate cuts.
Traders now see about a 68% chance of the Fed cutting interest rates for the first time in June, according to Fed data CME Group Fed Watch Tool.
However, top U.S. asset manager Vanguard Group doesn’t believe this.
The basic scenario is that the Federal Reserve will not cut interest rates in 2024. Shaan Raithatha, senior economist at Vanguard Group, said that this may have an impact on global central banks and markets.
“As we all know, the rate cuts have come down to three from seven at the beginning of the year,” Raithatha told CNBC’s “Squawk Box Europe” on Thursday.
“So, it depends on the cause… If it’s because the economy is strong, especially supply-side driven growth, which is also deflationary, then maybe stocks can continue to rise. But at Vanguard, we also think at this stage U.S. stocks are relatively overvalued.”
Federal Reserve Chairman Jerome Powell speaks during a news conference at the Federal Reserve’s William McChesney Martin Building on March 20, 2024 in Washington, DC.
Chip Somodevilla | Getty Images News | Getty Images
Vanguard is not the only company to raise the possibility that the Federal Reserve will implement zero interest rates this year.
Sycamore Tree Capital Partners co-founder and CEO Mark Okada said on CNBC’s “Closing Bell” program last week that the central bank will most likely not cut interest rates in 2024.
“We are in a higher, longer camp,” Okada said on March 12.
Meanwhile, forecasters in a CNBC Fed survey said they still expect the Fed to cut interest rates an average of three times in 2024.
global impact
As for when other central banks will start cutting interest rates, Raitata said, “There’s a bit of a cat-and-mouse issue here.”
“I think everyone is a little scared to go to the Fed. The (Swiss National Bank) is obviously the exception, but the inflation issue there is slightly different,” he added.
“I would say the key thing for (the European Central Bank) is what happens to the euro. Right now, the market is pricing in fairly similar paths for the Fed and the ECB. We have a slightly different view on that.”
He said that if the Federal Reserve does keep interest rates stable in 2024, “and the European Central Bank does cut interest rates, what will happen to the euro?”
“The euro could depreciate, we don’t know how much, but if you say the euro is heading toward parity, and maybe that’s an extreme assumption, then that will obviously further raise inflation concerns,” Retata said.
this EUR The stock was down 0.1% at $1.0909 at around 11:40 a.m. London time on Thursday.
Vanguard Group’s Raithatha said the asset manager expects the ECB to cut interest rates four to six times this year.
The European Central Bank is expected to cut interest rates for the first time in June after keeping rates steady earlier this month.
About The Author
