Vanguard’s argument overturns market speculation after one of America’s largest money-management firms said it did not see the Federal Reserve hiking interest rates the rest of the year, based closely on the Fed’s remarks over how it wants to handle monetary policy in economically troubled times.
In an ironic twist, Vanguard’s view flies in the face of growing expectations that the Federal Reserve will cut interest rates as the costs of living soar and wind up global growth. Many market commentators have been betting on the chances of this, but Vanguard does not.
Small legions of Wall Street seers have been intently watching the Federal Reserve, struggling to discern something about its intended policy gears that might tip the market either way. While oil prices could trigger fundamental value concerns, Vanguard’s decision desk seemingly believes that the economy doesn’t need a shot in the arm to recover in the form of a cut to its key interest rate this fiscal year.
Vanguard’s position reflects its thinking about’ a host of economic data points and the Fed’s communications about its financial outlook’, which, according to the asset manager’s analysis, ‘continue to suggest that inflation will remain elevated through next year and that the US economic recovery will continue on a gradual path of improvement.’
This difference is emblematic of how difficult economic forecasting is and the range of inputs involved in setting monetary policy. The Vanguard stance suggests that forecasting should be integrated into the broader context and met with patience.
The Federal Reserve has been notably dovish, saying that it will respond to data as circumstances evolve, setting aside any preconceived policy tightening. Open market committee members have recently commented on growing inflation pressures without committing to rate cuts.
Throughout the year, they’ll be watching economic numbers, Federal Reserve communications, and comments from big institutions such as Vanguard for hints as to where rates as a group may be heading and how investors should respond to these hints.
Source: www.cnbc.com March 22, 2024
