Markets are currently awaiting the US Central Bank's interest rate decision this September, with many investors predicting a delay in rate hikes, according to investment expert Jim Smigiel, SEI's Chief Investment Officer, and Vincent Reinhart, Dreyfus and Mellon's Chief Economist.
Both Smigiel and Reinhart expect the US Central Bank to maintain its current position on interest rates this month. However, Smigiel expects at least one more interest rate hike before the end of the year, possibly in November.
The US Central Bank's key communication is expected to emphasize its commitment to maintain policy measures in place for as long as necessary. This is a strategy aimed at ensuring economic stability and managing the rate of inflation, said Reinhart.
In terms of market conditions and investment opportunities, Smigiel voiced doubts about the rising real rate situation. He highlighted the remarkable trend where growth stocks have surged nearly 30%, while the market as a whole is up more than 15%. This comes amid a rise in yields of more than 60 basis points this year. This observation prompts Smigiel to expect limited improvement in the near term.
On the other hand, Reinhart warned that restrictive policies from the Central Bank could pose risks to the economic expansion and increase its vulnerability to damaging shocks such as government shutdowns, sudden increases in student loan payments, or prolonged strikes. He pointed out that over the last four decades, strict policies from the Central Bank have led to recession.
Reinhart emphasized that the primary goal of the US Central Bank is to lower inflation and that the Fed will maintain this tight policy as long as it takes to achieve this goal. He expects the funds rate to remain at a high level until the US Central Bank is confident that inflation is in a declining phase.
