While the trend in the market is positive regarding whether the Fed will lower interest rates this year, the investment company Blackrock
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I actually think the opposite. The world’s largest investment company warns that optimism may be costly. And that not only will the interest rate not go down, but it will continue to rise. According to CME Group, the interest rate cuts are expected to start from July, reductions that could amount to a percentage reduction by the end of the year.
“We will not see the Fed lower interest rates this year. In the past, it was customary for the Fed to rush to lower interest rates in order to save the economy from recession, but the situation now is different from before. We are now in a new phase that we have not encountered, in which the Fed carefully fights inflation (does not raise interest rates sharply as last year, but does not lower the interest rate)” said analysts from Blackrock.
The forecasts released by the Fed after the recent interest rate hike show a forecast for lower inflation later this year. The median forecast for gross domestic product growth for the entire year is 0.4%, while at the same time officials expect an unemployment rate of 4.5% by the end of the year, compared to 3.6% today. Getting there would require the loss of more than 571,000 jobs, according to the Atlanta Fed’s calculator.
Blackrock claims that the current strength of the market is due to the fact that investors are optimistic that the Fed will begin to ease its monetary policy after a year of tightening. “We think that the Fed will be able to lower interest rates as the markets expect only if a deeper than expected recession is caused due to a lack of credit,” the analysts said.
The investment company said that the optimism in the market comes despite public statements by central bank officials, who said in the latest forecast that the interest rate will likely rise by another quarter of a percent and is expected to remain the same at least until the end of 2023, since the Fed is now focused on fighting inflation, which further reduces the likelihood of a reduction.
With the recent interest rate increase, they estimated that the interest rate would rise between zero and 0.5%. Two weeks before, it was estimated that the interest rate would rise by 0.5% as the sticky inflation refuses to go down and the labor market is showing strength. But against the background of the banking crisis caused by the increase in interest rates and the increase in the losses of the banks, the investors estimated that there is a good chance that the increase will be moderated.
According to the Fed’s forecast, the interest rate in 2023 is expected to be 5.1% and at the end of 2024 it will be 4.1%, which means that it will probably start to decrease during 2024. In 2025 it is expected to be around 3.1% and then reach 2.5% – which is the interest rate expected in the medium-long term. The interest rate today is 5%-4.75%.
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