State Street Global Advisors is now predicting that the Fed will cut interest rates by 50 basis points as soon as this June, according to a Bloomberg report. The $3.6 trillion asset manager sees the Federal Reserve lowering rates after what has been over a year of high rates.
By the end of the year, the firm expects reductions to total 150 basis points. This would be two and a half times what markets are currently pricing. The strong jobs report from last week raised optimism of fewer interest rate hikes.
On the other hand, State Street also maintains the economy is not as strong as it seems. They point out indicators like credit card delinquencies and the cost of credit to small businesses that signal a downward turn later this year.
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“The market is underplaying the likelihood of deeper cuts,” Lori Heinel, State Street’s Boston-based chief investment officer, said in a recent interview. “There’s a lot to suggest that this is still a very fragile recovery despite the fact it continues to look resilient on the surface.”
Heinel suggests that the upcoming US election will impact the decision by the Fed to cut interest rates. The CIO predicts more sizeable cuts leading up to and following the election.