Markets are wrong on US rate cut bets, BlackRock says

According to BlackRock Inc.

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The world’s largest money manager favors inflation-linked bonds – securities that protect against rising prices – on the view that the market was wrong to expect the US to cut interest rates as the economy falters. towards recession. It will be different this time as the Fed and its colleagues have made it clear that the troubles plaguing the banking sector will not stop their fight against inflation, BlackRock Investment Institute strategists including Wei Li wrote in a customer note.

“We won’t see a rate cut this year – that’s the old playbook as central banks rush to bail out the economy when a recession hits,” the strategists said. “We see a new, more nuanced phase of inflation curbing ahead: less conflict but still no rate cut.”

BlackRock’s position contradicts those of TD Securities and DoubleLine Capital LP, who argue that the Fed is wrong in its view that further rate hikes are needed as recession risks mount. The collapses of several US banks and Credit Suisse Group AG this month are forcing a global rethink of the outlook for monetary policy, while causing the biggest swings in Treasury yields. silver for over a decade.

Yields on U.S. two-year bonds – one of the securities most sensitive to changes in central bank policy – rose on Monday from near their lowest level this year as worries around the contagion of the banking industry eased. While investors have reverted to pricing on the prospect of the Fed raising rates by a quarter point in May, they are also betting that the market is not quite stable yet and there could be around 75 basis points. copies will drop later this year.

Yields on two-year Treasuries fell six basis points to 3.93% in Asia on Tuesday.

Read more: BlackRock strategists say stocks bet on rate cuts too soon

Recent economic data reinforces BlackRock’s view that the Fed may be “underestimating the extent to which persistent inflation is demonstrating due to a tight labor market.” Core US consumer prices rose in February, while research from the New York Fed showed inflation appeared poised to last longer than previously expected.

“We think the Fed can only deliver rate cuts in line with market valuations if a more severe credit crunch unfolds and triggers a recession,” BlackRock strategists said. recession was even deeper than we expected.” They write that the company is taking an unbalanced position in mature market stocks to reflect its market views.

(Updated with latest Treasury levels in paragraph 6.)

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