No need for a series of large interest rate cuts, says fixed income expert

No need for a series of large interest rate cuts, says fixed income expert
Andrzej Skiba, RBC Global Asset Management and Heather Wonderly, Adrich Wealth
"Recession is not a base case scenario over the quarters ahead."
SEP 19, 2024

After days of speculation and conjecture, the US Federal Reserve went bold and dovish with a 50 basis points cut to its overnight interest rate.

It was the first cut in four years and took the Fed's fund rate down to the 4.5-7.5% range. While many forecasters had predicted the central bank would be emboldened enough to go with the double cut, for others it was more of a surprise.

“While we expected 25 basis points based on recent inflation and labor market data, the Fed delivered 50 basis points and the FOMC statement erred on the dovish side. We expect Chair Powell to highlight flexibility of moving at larger increments were labor market data to worsen further,” said Andrzej Skiba, managing director and head of U.S. fixed income at RBC Global Asset Management, in a statement.

Today’s rate cuts also prevents a scenario where investors are wondering what the Fed is seeing in the US economy that would warrant a 50 basis point move and more-than-expected cuts ahead, added Skiba.

“Overall, we remain of the view that recession is not a base case scenario over the quarters ahead. We see no need for the Fed to 'move ahead of the curve' by introducing a series of larger cuts at this stage. We will watch incoming data carefully and if labor market conditions or general health of the consumer weakens materially, we stand ready to adjust our views accordingly,” he added.

Inevitably, the presidential candidates jumped on the decision, with Republican Donald Trump labelling the cut as a “very unusual number” and bad news for his opponent. Democratic Party nominee Kamala Harris said the decrease was “welcome news for Americans who have borne the brunt of high prices.”

Fed chair Jerome Powell, at pains to stay political neutral, said opting for 50 bps was a result of staying patient and getting inflation under control.

"This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%,” he said in a press conference. However, he warned investors not to expect more large cuts as a matter of course. “I do not think that anyone should look at this and say, ‘Oh, this is the new pace,’” Powell said.

Nevertheless, a slightly higher than expected CPI print and a jobs report that showed an uptick in unemployment has fuelled optimism. But despite the announcement, some advisors are still cautious about the impact interest rates cuts can have on clients. Heather Wonderly, newly appointed CEO and president at Aldrich Wealth cautions advisors about being “anticipatory”.

“It has a lot of impacts,” she says. “From a business owner standpoint, it impacts the debt that they may have, for their business and their real estate. It impacts their portfolio investments. It also impacts them in other ways as well.”

Wonderly believes diversification over the long term is a good thing but also something that gets “forgotten about.” She asserts that looking at alternative investments is really important for investors to be considering, especially in light of correlation with the stocks and bonds and decreasing number of publicly listed companies

“Investors should be paying attention to what their longer-term objectives are for their portfolio,” she says.

Latest News

Advisor moves: Atlas tops $1B as Wells Fargo, UBS add bank veterans
Advisor moves: Atlas tops $1B as Wells Fargo, UBS add bank veterans

Wells Fargo adds two bank-channel recruits, UBS lands a JPMorgan Chase veteran, and a multi-family office lifts Atlas past $1B

Advisor mom’s son used her password to log into clients’ accounts, sell deal with conflicts, according to Washington state
Advisor mom’s son used her password to log into clients’ accounts, sell deal with conflicts, according to Washington state

“The state comes down on you in years when you make 40% returns for clients,” said Bill Swayne, the advisor and son of Candace Swayne.

Osaic in talks with Anthropic as AI reshapes advisor workforce
Osaic in talks with Anthropic as AI reshapes advisor workforce

The Independent broker-dealer giant has had “active conversations” with the Claude maker, which is days away from its expected IPO

The retirement milestone advisors aren't tracking
The retirement milestone advisors aren't tracking

For Gen X clients entering life after work, answering the financial question isn't enough to solve the entire retirement equation.

Wealthtech firms target stock pay, pensions and heirs for advisors
Wealthtech firms target stock pay, pensions and heirs for advisors

Tools from Grantd, Income Lab and Healthspan Wealth aim to keep RIAs involved in clients’ biggest money decisions

SPONSORED Best Practices for Engaging Women Around Alternatives

Growing wealth, evolving priorities, and untapped opportunities are reshaping how women approach long-term investing.

SPONSORED Built on insurance experience to deliver on long-term promises

Knighthead Life entered the market with a competitive MYGA. A strong launch earned advisor confidence and paved the way for FIAs.