BlackRock, the largest asset manager globally, issued its weekly commentary on Monday, sharing its outlook on the current state of the U.S. economy and its projection that the Federal Reserve will not cut interest rates this year. Despite the turbulence in the banking sector and the Federal Reserve signaling a pause, BlackRock's strategists observed that markets have been swift in pricing in rate cuts. However, they argue that the conventional approach of central banks rushing to rescue the economy during a recession is outdated. Instead, they believe that central banks are causing the recession to combat persistent inflation, which makes rate cuts improbable.
Although stocks have remained stable due to expectations for rate cuts, which BlackRock's strategists don't foresee, they clarified that the Federal Reserve would only implement rate cuts if the credit crunch became more severe than predicted and resulted in a more profound recession. Furthermore, the strategists believe that inflation is likely to be more persistent than what the Federal Reserve anticipates without a profound recession.
The BlackRock strategists went on to explain that central banks are trying to reduce inflation to policy objectives, which heralds an imminent recession, contrasting past recessions. They noted that rate cuts would not support risk assets.
The impact of higher interest rates on sensitive sectors has become evident in the United States, with financial cracks emerging. Higher mortgage rates have led to a decline in new home sales, and other warning indicators such as CEO confidence erosion, delayed capital spending plans, and consumers depleting savings have been noted.
In conclusion, BlackRock's weekly commentary suggests that the U.S. economy faces challenges that necessitate a new playbook different from the one used in the past. BlackRock believes that the Federal Reserve cutting interest rates is unlikely this year and that central banks are creating a recession to fight inflation. As a result, investors must be cautious and prepared for potential hazards to their portfolios.
Disclaimer: The information provided in this section is for informational purposes only, doesn't represent any investment advice or FameEX's official view.