The US Federal Reserve is likely to hold off cutting interest rates in the near future because of inflation, according to Rob Subbaraman, Head of Global Macro Research at Nomura.
Speaking to CNBC-TV18, Subbaraman said, “We have the first cut in December. But for other central banks around the world, there’s a lot of room for cutting rates.” He noted that Nomura has recently added two more rate cuts to its forecast for the European Central Bank (ECB). “Many central banks we (see) essentially cutting while the Fed’s on hold,” he added.
Investors will be closely watching the next Federal Reserve meeting, scheduled for May 7, 2025, for any signals on the direction of rate cut.
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Subbaraman pointed out that uncertainty remains around the long-term cost of borrowing in the US. On one hand, fears of an economic downturn are growing. If the US enters a recession and markets begin expecting deeper rate cuts, treasury yields could drop significantly.
However, market trends have been unusual. “The perverse situation we have seen in recent weeks, where you have had equity markets going down, but 10-year bond yields going up, is raising concerns that maybe risk premium is building in the US. And whether that’s because of the fiscal situation or because of maybe loss of trust, or loss of confidence in policy-making in the US (is open for debate).”
Subbaraman warned that this could lead to a rocky road ahead for bond markets.
Craig Chan, Head of Global FX Strategy at Nomura, said investors are getting more worried because of all the changes in US policies. At first, people were concerned about big global risks and how they might affect AI. Then the focus shifted to trade rules like tariffs and other restrictions. Now, there are even questions about whether holding US treasuries could lead to new taxes. All of this is making investors unsure, and as a result, many are starting to pull back from US assets, which they had been strongly investing in for years, Chan said.
For the entire discussion, watch the accompanying video
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