Fed rates are unlikely to go anywhere near zero, even if US economy tips into recession – Morgan Stanley
|
Morgan Stanley (MS) came out with a research paper late Wednesday suggesting that the major central banks are on track to hit peak interest rates within the next few months. The MS, however, also said that central banks will likely pause rates for an extended period before they start easing, but investors should brace for other scenarios.
Key findings
Bank of Canada may have hit its peak already; in the US, the Federal Reserve seems to be edging closer, as banking sector volatility dialed back expectations around future hikes; and the US and Europe may have more hikes in store as their central banks try to manage renewed inflation.
But investors should not be looking for a return to the low rates they have come to expect in recent cycles.
Markets are now aligned with Morgan Stanley Research’s view that the Fed’s upcoming hike on May 3 will be the last.
However, we do not expect sudden and drastic cuts to follow, and rates are unlikely to go anywhere near zero, even if the U.S. economy tips into recession.
Morgan Stanley Research sees a mild recession as the base case in the U.K. If anything, the Bank of England (BoE ) may hike further to avoid re-accelerating inflation.
We think the European Central Bank (ECB) is also willing to accept a recession to bring down inflation.
Additional readables
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.