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Interest rates are unlikely to drop soon, said an executive at a company with assets of $1.8 trillion.
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Pimco’s Daniel Ivascyn told the Financial Times that he doubted central banks’ ability to control inflation.
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Inflation is still double the Fed’s 4% target, although stock markets have rallied this year.
After 18 murderous months for the economy, investors had hoped that the dream days of low inflation and low interest rates were upon us.
With inflation falling last month and the stock market soaring, there are growing hopes that the United States could avoid a recession.
Not so fast, says a colossal investor who thinks interest rate cuts are still a long way off – while a ‘hard landing’ remains a possibility.
Speaking to the Financial Times, Pimco chief investment officer Daniel Ivascyn said investors would likely be disappointed with the pace at which central banks like the Federal Reserve can lower key rates.
Pimco manages assets worth $1.8 trillion, slightly less than the size of the entire UK economy. But his funds have generally underperformed the broader S&P 500 this year.
In June, the Fed caught its breath after 10 consecutive rate hikes, keeping its main rate between 5% and 5.25% – but it is expected to continue to rise this year.
“We would say the market is perhaps still overconfident in the quality of the central bank’s decisions and its ability to deliver positive results,” Ivascyn told the FT.
Despite inflation falling faster than expected, May’s 4% annual consumer price index (CPI) figure is still double the Fed’s 2% target. The consumer price index for households is 5.5% in the euro zone, while the CPI is still at 8.7% in the United Kingdom.
“We have a real, legitimate inflation problem,” Ivascyn told the FT, adding that it would be difficult for central banks to cut their target rate until inflation is much closer to the 2 target. %.
While he thought the United States would have a “soft landing” — where inflation falls on target without the economy going into recession — Ivascyn also said he was avoiding investing in stocks. areas vulnerable to a slowdown.
Read the original article on Business Insider