Altaf Kassam, State Street’s head of investment strategy in EMEA, has warned that the U.S. economy may face challenges in 2025 if the Federal Reserve doesn’t act promptly on interest rates. In a recent interview with CNBC’s “Squawk Box Europe,” he pointed out that the traditional monetary policy mechanisms appeared to be inefficient, leading to potential delays in the transmission of any changes made by the Fed to the real economy.
Kassam noted that U.S. consumers and companies had taken advantage of lower interest rates during the Covid-19 era to refinance their debts on long-term, fixed-rate bases. This means that the impact of higher interest rates might not be immediately felt but could surface later when refinancing is due. He cautioned that if rates remained at current levels until 2025 when a significant level of refinancing was expected, it could lead to disruptions in the economy.
Despite expectations of near-term rate cuts by the Fed, recent inflation data and strong economic indicators have diminished these hopes. San Francisco Fed President Mary Daly emphasized that there was no rush to cut rates, given the robust economy and labor market. This contrasts with earlier expectations of multiple rate cuts this year, with markets now scaling back their projections.
While the European Central Bank is still expected to lower rates in June, some banks have adjusted their forecasts based on the Fed’s stance. State Street’s outlook for a June Fed rate cut remains unchanged, despite shifting expectations in the market. This uncertainty underscores the complexity of navigating economic policy amidst changing global dynamics.
In summary, Kassam warns that if interest rates remain high for an extended period until 2025 when significant refinancing is expected, it could lead to disruptions in the U.S economy. The uncertainty surrounding Federal Reserve policy actions highlights how challenging it can be for businesses and investors to make informed decisions about their investments and future strategies.
Furthermore, Kassam notes that lower interest rates during Covid-19 era helped consumers and companies refinance their debts on long term fixed rate basis which might not immediately reflect higher interest rates but could surface later when refinancing is due.
San Francisco Fed President Mary Daly’s statement further dampened expectations for near term rate cuts by saying there was no rush to cut rates given robust economy and labor market.
Euro central bank is still expected to lower rate but some banks have changed their forecast based on fed stance which highlights uncertainty surrounding economic policy making it difficult for businesses and investors make informed decisions.
Overall uncertainty around federal reserve policy actions underscores how challenging it can be for businesses and investors to make informed decisions about their investments and future strategies while also highlighting potential risks facing US economy if fed does not act promptly on interest rates