Economists at Morgan Stanley say rising oil prices and continued inflation could delay interest rate cuts from the Federal Reserve.
Speaking on the “Market Thoughts” podcast, US Chief Economist Michael Gapen he says The Fed should continue to tread cautiously, pushing for further rate cuts that are expected to continue for the rest of the year.
“I think the answer is caution and maybe the rate reduction will come later than before. Therefore, we have changed our opinion behind the FOMC meeting. Previously we thought that the rate reduction would come in June and September.
The short answer here is that I think with rising oil prices and a gradual increase in the headline inflation rate – it may take the Fed a long time to declare that disinflation is occurring. So, I think they need more time, and that means the Fed is pushing rates. “
The recent FOMC meeting showed strong institutional interest in inflation concerns, with policymakers emphasizing price stability over labor market conditions. While unemployment remains stable, job growth has slowed significantly, indicating a volatile labor market that may still need policy support later this year.
According to Matthew Hornbach, Global Head of Macro Strategy at Morgan Stanley, this could create opportunities in stable markets.
“And I think if that’s what we’re going to see from the economy and from the Fed, then the US Treasury market is set up to be good at the end of the year.
But I think if we get the results of the US economy and the Fed policy, I think investors in US Treasuries will benefit. And although they did not receive the reward as expected or expected – the US Treasury market itself and the correlations that provided risky products like the equity market, it shows that the US Treasury, despite being bought recently, has been acting as a good security for many risky securities. Therefore, we can expect the US Treasury market to do well in this regard. “
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