Analysts clash over where the Fed is heading

The financial markets are in turmoil and experts argue over the future direction of interest rates. This article collates the views of two CMC Markets experts, London-based market analyst Michael Hewson and Madrid-based market analyst Luis Ruiz, to give readers a comprehensive look at the topic.

Analyst Michael Hewson argues that despite the recent turmoil in the markets and in the banking sector, interest rates should not be cut in the foreseeable future.

"The prospect of a sharp recession and possible rate cuts replaced expectations for further rate hikessays Hewson.

Analyst Luis Ruiz, on the other hand, maintains that the market sometimes beats central banks and that the arrival of the first rate cuts is only a matter of time.

"In the last 40 years, there have never been such strong rate hikes. Rate hikes have a certain delay before they reach the economy, and when they are large, they tend to end in a recession– he convinces.

While Hewson points out that core inflation remains high, with the US PCE core inflation rate rising to 4,7% in February, Ruiz notes that headline inflation is often the leading indicator of core inflation, and the fall in energy prices suggests that the economy is not as strong as expected.

Both analysts agree that central banks must respond to economic developments, but their views on how to do so differ fundamentally. Hewson suggests a balanced approach:

“What recent events may lead central banks to do is pause to give markets time to calm down and watch the impact of monetary policy delays on different parts of the economy in recent rate hikes.”.

Luis Ruiz, on the other hand, believes that the market is probably right and rate cuts will take place in the near future. “The market (winner) versus the central bank (loser). If I had to choose, I'd rather think the market is right and a rate cut is just a matter of the short term."

Wnioski

All in all, the contrasting views of both analysts offer different perspectives on the future direction of interest rates. While Hewson takes a more cautious stance and doesn't expect any rate cuts anytime soon, Ruiz believes the market could surprise central banks and force rate cuts in the near term. Ultimately, the future of interest rates depends on many factors and only time will tell which of the two analysts is right.

Therefore, it remains to wait for how the economic environment will develop and what impact it will have on the decisions of central banks. Although opinions differ, both highlight important aspects that are relevant to the overall discussion of the economy and interest rates. It is essential that investors and financial market participants closely monitor developments and be prepared for possible changes in monetary policy.

However, one thing is certain: the current discussions and disputes among experts show that predicting future interest rates is not easy. Turmoil in financial markets and multi-layered factors influencing economic development make it difficult for analysts, central banks and investors to formulate clear forecasts.

In these uncertain times, it is important that all parties carefully weigh the different opinions and arguments and create their own picture of possible interest rate developments in the future. So whether central banks will adjust or maintain their monetary policy is an open question.