On June 12, 2024, in the trading floor of the New York Stock Exchange, a trader was displaying the Federal Reserve interest rate announcement on the screen.
Brendan McDermid | Reuters
RIYADH, Saudi Arabia – Major Wall Street CEOs see continued inflationary pressures in the U.S. economy and do not believe the Federal Reserve will continue to implement easing policies and cut interest rates twice more this year.
The Federal Reserve cut its benchmark interest rate by 50 basis points in September, marking a turning point in its management of the U.S. economy and its inflation outlook. In a late-September report, strategists JPMorgan Chase and Fitch Ratings Two more rate cuts are expected by the end of 2024, with such cuts expected to continue into 2025.
CME Group’s Fed Watch Tool The probability of a 25 basis point rate cut at this week’s November meeting is expected to be 98%. There is currently a 78% chance that the benchmark interest rate will be cut by another 25 basis points at the December meeting.
But some CEOs seem skeptical. Speaking at the Future Investment Initiative, an economic showcase conference in Saudi Arabia last week, they argued that more inflation is on the horizon in the United States as the country’s economic activity and the policies of both presidential candidates address potential inflation. expansion and stimulus developments – such as public policy spending, manufacturing offshoring and tariffs.
Speaking on an FII panel moderated by CNBC reporter Sara Eisen, a group of CEOs that included bosses of Wall Street behemoths such as Goldman Sachs, Carlyle, Morgan Stanley, Standard Chartered and State Street were asked Show your hands if they think two more Fed rate cuts will be implemented this year.
No one raised their hands.
“Honestly, I think inflation is stickier,” said Jenny Johnson, president of Franklin Templeton. “If you look at the jobs report and the wage report in the U.S., I think it’s going to be very difficult for inflation to get down to 2%. The CEO said in an interview with CNBC on Wednesday that she sees only one further rate cut this year.
“Remember a year ago, we were all here talking about a recession? Is there going to be (one)? No one talks about a recession anymore,” she said.
Larry Fink, whose massive BlackRock fund manages more than $10 trillion in assets, also expects a rate cut by the end of 2024.
“I think it’s fair to say we’re going to have at least a 25 basis point cut, but that being said, I do believe there’s more inherent inflation in the world than we’ve ever seen,” Fink said in a separate post last week. said an FII panel.
“Our government and policies have much higher inflation rates. Immigration — our homegrown policies, all of this — no one is asking the ‘at what cost’ question. I would say, historically, we are A more consumer-driven economy where the cheapest products are the best and most progressive approach to politics,” he noted.
American consumer price indexone Key Inflation Indicatorswas Up 2.4% in September Compared to the same period in 2023, according to the U.S. Bureau of Labor Statistics. The figure was down from 2.5% in August, implying slower price growth. September’s reading was also the smallest annual reading since February 2021.
On Friday, new data showed U.S. job growth slows in October Growth fell to its lowest level since late 2020.
Goldman Sachs Chief Executive David Solomon said inflation will be more deeply integrated into the global economy than market participants currently forecast, meaning price increases may be stickier than consensus.
“That doesn’t mean it’s going to rear its head in a particularly ugly way, but I do think it has the potential to be more of a headwind than the current consensus, depending on the policy actions that are taken,” he said.
Morgan Stanley Chief Executive Ted Pick went further, declaring last Tuesday that the days of easy money and zero interest rates were behind him.
“The end of financial repression, zero interest rates, zero inflation, that era is over. Interest rates will be higher and will be challenged around the world. And the end of ‘the end of history’ – geopolitics is back and will be The end of history. With the end of history, conflicts between nations and ideologies have become a thing of the past.
Speaking on Sarah Eisen’s panel on Tuesday, Apollo Global CEO Mark Rowan even questioned why the Fed was cutting interest rates when so much fiscal stimulus is propping up a seemingly healthy U.S. economy. He cited the U.S. Inflation Reduction Act, the Chip and Science Act, and increases in defense production.
“In the United States, we are all talking about good things. We are talking about good things. Going back to your point about interest rates, we raised them significantly, and yet, the stock market (is) at all-time highs, no unemployment, capital markets are at will Release, are we stimulating the economy?
“I try to remember why we’re cutting rates, rather than trying to balance the bottom quartile,” he later added.
