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If you’re hoping interest rates will fall anytime soon, you’re out of luck, says $1.8 trillion financial titan
Ryan Hogg
Jul 2, 2023, 11:00 AM EDT
- Interest rates are unlikely to fall soon, said an executive at a firm with assets of $1.8 trillion.
- Pimco’s Daniel Ivascyn told the Financial Times he doubted central banks’ ability to tame inflation.
- Inflation is still double the Fed’s target at 4%, although stock markets have rallied this year.
After a bruising 18 months for the economy, investors had hoped the dreamy days of low inflation and interest rates were just around the corner.
With inflation dipping last month and the stock market booming, there’s growing hope that the US could avoid a recession.
Not so fast, says one mammoth investor who believes interest rate cuts are still some way off – while a “hard landing” very much remains a possibility.
Speaking to the Financial Times, Pimco’s chief investment officer, Daniel Ivascyn, said investors were likely to be disappointed by the pace at which central banks like the Federal Reserve can bring down their base rates.
Pimco manages assets worth $1.8 trillion – a bit smaller than the size of the entire UK economy. But its funds have typically underperformed the broader S&P 500 this year.
In June, the Fed took a breath after 10 consecutive rate rises, keeping its main rate at between 5% and 5.25% – but it’s expected to keep hiking this year.
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“We would argue that the market may still be too confident in the quality of central bank decisions and their ability to engineer positive outcomes,” Ivascyn told the FT.
Despite inflation falling faster than expected, May’s 4% annual Consumer Prices Index (CPI) figure is still twice the Fed’s target of 2%. The Household Index of Consumer Prices is 5.5% in the Eurozone, while CPI is still an eye-watering 8.7% in the UK.
“We have a real legitimate inflation problem,” Ivascyn told the FT, adding it would be difficult for central banks to cut their target rate until inflation is much closer to the 2% target.
While he believed the US would have a “soft landing” — where inflation falls to target without the economy entering a recession — Ivascyn also said he’s avoiding investing in areas vulnerable to a downturn.
Source: Business Insider
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