Financial markets are eagerly awaiting the U.S. Federal Reserve's decision on interest rates this September, with many investors predicting a pause in rate hikes, according to investment experts Jim Smigiel, SEI Chief Investment Officer, and Vincent Reinhart, Dreyfus and Mellon Chief Economist.
Both Smigiel and Reinhart expect the Federal Reserve to maintain its current position on interest rates this month. However, Smigiel anticipates at least one more rate hike before the year ends, possibly in November.
The Federal Reserve's primary communication is expected to emphasize its commitment to maintaining restrictive policy measures for as long as necessary. This is a strategy aimed at ensuring economic stability and managing inflation rates, underscored Reinhart.
In terms of market conditions and investment opportunities, Smigiel expressed skepticism about the market's multiple expansion amidst rising real rates. He highlighted an unusual trend where growth stocks have surged by nearly 30%, while the broader market has increased more than 15%, all in the face of yields rising by over 60 basis points this year. This observation led him to anticipate limited appreciation in the near term.
Reinhart, however, was optimistic about the strength of the economy and its ability to withstand potential lag factors, even if another rate hike occurs this year. He cited the addition of an average of one-third of a million workers to payrolls each month as an indicator of a robust economy.
However, Reinhart warned that restrictive Fed policy could place the economic expansion at risk and increase vulnerability to adverse shocks such as government shutdowns, sudden increases in student loan payments, or prolonged strikes. He pointed out that over the past four decades, firm policies from the Fed have led to recessions five out of six times.
Reinhart maintained that the Federal Reserve's ultimate goal is to lower inflation and that it will keep the policy restrictive for as long as necessary to achieve this. He expects the funds rate to remain at a high plateau until the Federal Reserve is convinced that inflation is on a downward trend.
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