‘We see more volatility ahead until central banks take sides in the stark trade-off between growth and inflation they are facing,’ says BlackRock
The market’s view of interest rate hikes faces more volatility as long as central banks think they can tame high inflation without “crushing growth,” according to BlackRock, the world’s largest asset manager. “We see more volatility ahead until central banks take sides in the stark trade-off between growth and inflation they are facing,” said strategists at BlackRock Investment Institute in a note Monday. “We think the Fed will overtighten rates and cause acute damage to growth before pivoting.” The Federal Reserve will kick off its two-day policy meeting on July 26, with many investors expecting it to conclude with another large interest-rate hike in an effort to cool the hottest inflation in four decades. “The Fed is set to raise rates by an additional 0.75% or more this week as it scrambles to raise the fed funds rate into restrictive territory to rein in inflation,” the BlackRock strategists said. A hike of three-quarters of a percentage point would take the fed funds rate to a target range of 2.25% to 2.5%. The market’s expectations for future policy rates of the Fed and European Central Bank have “swung up and down in the past year,” according to a chart in their note that cites Refinitiv data. The solid lines show “market expectations for 1-year rates in one year’s time based on interest rate swaps.”
“Market pricing for the fed funds rate jumped from near zero to almost 4% in June,” the strategists said. “That epic move was followed by a one percentage point drop in just a month’s time.”
Meanwhile, the Fed’s forecasts suggest it believes it can bring soaring inflation back to its 2% target without damaging growth. NB: hahahahahahahahHAHAHAHHHHHAAAAAAAAH
“Central banks think they can curb inflation and cause only a mild slowdown, whereas this is unlikely in reality, in our view,” the strategists wrote. They have been “ignoring the sharp trade-off they are facing: crush growth or live with some inflation.” In BlackRock’s view, a “soft landing” is unlikely and the Fed will pivot next year once the economic impact of its rate hikes becomes clear, according to their note. “The market agrees,” the strategists said. “Rate projections now show the Fed cutting rates in 2023. That’s consistent with our view.” The U.S. stock market was trading mixed early afternoon Monday as investors look ahead to the Fed meeting and a wave of company earnings reports this week. NN: of course the US is in a recession…… Soon it will be called a depression… Of course Janet baby sweetheart treasury liar in chief will deny it…….