Do you feel confident that the Federal Reserve is not going to continue raising interest rates for much longer when considering the market bets and Fed cuts? Good morning, it’s great to be here. The direction of interest rates will undoubtedly play a crucial role in stock markets in both the short and long term. In the short term, data dependency will guide the course of action. We believe that the latest rate hikes by both the Fed and ECB will keep rates at a higher level until the middle of next year.
However, market pricing for the Fed’s actions might be overly optimistic, possibly pricing in the first hike in June, which could be delayed until later in the summer. Conversely, the ECB’s actions could occur earlier than currently expected. Nonetheless, we are not out of the woods yet, as central bankers are unlikely to declare victory on inflation and will continue to prioritize data. Therefore, market outlooks will remain influenced by interest rates.
Furthermore, this trend is likely to persist in the long term as we are undergoing a shift towards a higher-rate environment, moving away from prolonged ultra-low and even negative monetary policies that have been prevalent in some parts of the world. This means that the strategies relied upon by the Fed and others over the past couple of decades may not be as dependable in the next ten years..