Forget rate hikes, these analysts predict rate cuts for next year OLASMEDIA TV NEWSThis is what we have for you today:
Some central bank observers believe the Fed and ECB will have to halt their tightening cycles because of an impending recession.
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Central banks around the world may have embarked on a path of aggressive rate hikes, but not everyone expects this approach to last.
The US Federal Reserve and European Central Bank are among those trying to manipulate record inflation with rate hikes. The Fed raised its benchmark rate by 75 basis points to a range of 1.5%-1.75% in June, and Chairman Jerome Powell has indicated that there could be another similar move in July.
Most market participants expect the increases to continue at least until the end of next year. But not everyone agrees.
“Can you really push interest rates into recession even when inflation is high? That would be unusual,” Erik Nielsen, global chief economist at UniCredit, told CNBC on Tuesday.
“There’s a very high probability that the Fed will cut rates by the end of next year or something, and this is the recession story again.”
His comments come amid growing concerns that both the US and euro-zone economies could face a recession. Earlier this month, the World Bank lowered its global growth forecast, warning that the economy is in danger of sliding into a period of stagflation reminiscent of the 1970s.
If this happens, some analysts say further rate hikes next year are unsustainable and risk hitting the economy even harder.
Indeed, Michael Yoshikami, founder of Destination Wealth Management, says it could lead to rate cuts as early as this year.
“Inflation is running away right now. The Federal Reserve is going to put out these multiple, very strong signals that they want to control inflation, it’s going to plunge the economy into a slow growth, stagflation or a recessionary environment and then I think the Fed is going to do that. start cutting rates again this year,” Yoshikami told CNBC on Thursday.
“If the Federal Reserve takes us closer to a recession and breaks inflation and has to cut a little bit to simulate the economy, I don’t think that’s necessarily a bad thing.”
However, this reversal is not the Federal Reserve’s base case.
When asked whether the U.S. would see rate cuts next year due to a potential recession, Loretta Mester, president of the Federal Reserve Bank of Cleveland, said on Wednesday, “I don’t see that in my baseline, but again, we’re just going to see economic conditions. on the spot as we move forward.”
She doesn’t expect the US economy to plunge into a recession — usually seen as two consecutive quarters of economic downturn — but sees growth slow this year.
But for some market players, and even companies, a recession is on the way. Ark Invest CEO Cathie Wood told CNBC on Tuesday that the US is already in a recession.
The closely watched Fed GDP tracker also indicates that the US economy is heading for a recession. The Atlanta Fed’s GDPNow tracker now points to a 1% contraction for the second quarter, after GDP fell by 1.6% in the first three months of the year
This potential growth freeze is why Berenberg economists expect the Fed to cut interest rates by the end of next year. They see the Fed’s key rate peak between 3.5% and 3.75% in the first half of 2023.
“We then expect the Fed to pause and cut rates in response to lower inflation and recessionary conditions – including a marked rise in unemployment from Q4 2023 – to a Fed’s 2.75-3% range. fund rate by the end of 2024,” they said in a note on June 21.
In the case of the “slow moving” ECB, they said it will “probably stop walking on reaching a 1% refinancing rate in December 2022 and remain at that still very low level in 2023 and 2024.”
The ECB has so far confirmed its intention to raise interest rates in July, the first in 11 years, and then again in September.
Robert Holzmann, member of the ECB’s Governing Council, told CNBC on Wednesday that there is ample room to continue raising rates after September.
“We’re going to have to estimate where economic development is headed and where inflation stands and then there’s plenty of room to increase in 0.25 and 0.5 levels to whatever rate we think is reasonable,” Holzmann, who is also the governor of the United States. Austrian central bank, said.
Berenberg forecasts a 0.4% GDP contraction for the US in 2023 and a 0.8% contraction for the eurozone.
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