BlackRock, the world's largest asset manager, released a weekly commentary on Monday in which it explained its view on the current state of the U.S. economy and why it does not anticipate the Federal Reserve cutting interest rates this year. Despite the banking sector's turmoil and the Fed signaling a pause, markets have been quick to price in rate cuts, according to BlackRock strategists. However, they believe that the old playbook of central banks rushing to rescue the economy as a recession hits is no longer applicable. Instead, they believe that central banks are causing the recession to fight sticky inflation, making rate cuts unlikely.
While stocks have held up due to hopes for rate cuts that BlackRock doesn't see coming, the strategists explained that the Fed could only deliver the rate cuts priced in by markets if a more severe credit crunch took hold and caused a deeper recession than anticipated. They also believe that inflation is likely to prove even stickier than the Fed expects without a deep recession. The BlackRock strategists went on to explain that recession is imminent as central banks try to bring inflation back down to policy targets, which is the opposite of past recessions. They noted that rate cuts are not on the way to support risk assets. In the United States, the effects of higher interest rates on top of rate-sensitive sectors have become apparent through the financial cracks that are emerging. Higher mortgage rates have impacted new home sales, and other warning signs, such as deteriorating CEO confidence, delayed capital spending plans, and consumers depleting savings, have been noted.
In conclusion, BlackRock's weekly commentary suggests that the U.S. economy is facing challenges that require a different playbook than the one used in the past. They believe that the Fed cutting interest rates is unlikely this year, and that central banks are causing a recession to fight inflation. As a result, investors should be cautious and prepared for potential risks 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.