Post by account_disabled on Feb 25, 2024 7:59:49 GMT
Investment chiefs at two of the world's largest asset managers have warned that the risk of a U.S. recession is rising, even as government officials and a growing number of investors believe U.S. interest rate increases Federal Reserve will not significantly harm the economy. Top fund managers at BlackRock and Amundi told the Financial Times that while the U.S. economy has largely appeared resilient in the face of the Federal Reserve's aggressive monetary tightening, cracks are now appearing, especially in the labor market. “The probability of a recession for us is very high,” said Vincent Mortier, chief investment officer at Amundi, which manages $2.1 trillion. “The question mark is how deep and how long. . . “We are much more concerned about the dynamics in the United States than about the consensus,” he said, adding that he expected the contraction to occur late this year or early next year. Rick Rieder, chief investment officer of global fixed income at BlackRock, which manages $9.4 trillion, said he had become more pessimistic about the state of the U.S. economy in recent weeks. While he thought the country would avoid a severe recession, he said a slowdown had already begun. “We were pretty excited about the economy. But now, ironically, when I think people have ruled out a recession.
Now I think we are seeing some tangible signs of a slowdown,” Rieder said. "I don't think a recession can be ruled out." Both are now "overweight" in U.S. government bonds - meaning they hold larger positions than Job Function Email Database their benchmarks would suggest - in the belief that the Federal Reserve may have already finished raising rates and that bonds would perform well during a period of economic weakness. Both also expect the dollar to fall. His warnings come even as the broader market expects a “soft landing,” in which the Federal Reserve manages to reduce inflation without sending the economy into a recession. Treasury Secretary Janet Yellen said over the weekend that she was increasingly confident that a soft landing was possible. Investment bank Goldman Sachs earlier this month reduced the probability that a recession will begin in the next 12 months. A Bank of America survey of global fund managers, released Tuesday, found that about three-quarters of respondents expected a soft landing or no slowdown for the global economy, up from 68 percent in June. The futures market is beginning to reflect investors' more bullish expectations.
Earlier this year, traders were betting on big interest rate cuts in 2023, expecting the Federal Reserve to be forced to ease monetary policy in the face of a recession. In recent months, those expected cuts have largely been delayed until the middle of next year. Both Mortier and Rieder pointed to a recent crisis in the labor market as evidence of a slowdown. Unemployment rose to 3.8 percent in August, higher than economists' estimates and above July's rate of 3.5 percent. While the number of jobs created was higher than expected, the totals for the previous two months were revised downwards. “For the first time there is tangible slack in the workforce,” Rieder said. With further rate hikes looking increasingly unlikely, Rieder said the relatively high yields on Treasury bonds on offer looked attractive. “Now that the Federal Reserve, while not completely finished, is pretty close to it. . . I think you can feel a lot better about taking on a little more exposure to interest rates,” she said. Recommended Mortier said a weaker labor market would weaken consumer demand, putting pressure on corporate margins as companies lower prices to compete for market share.
Now I think we are seeing some tangible signs of a slowdown,” Rieder said. "I don't think a recession can be ruled out." Both are now "overweight" in U.S. government bonds - meaning they hold larger positions than Job Function Email Database their benchmarks would suggest - in the belief that the Federal Reserve may have already finished raising rates and that bonds would perform well during a period of economic weakness. Both also expect the dollar to fall. His warnings come even as the broader market expects a “soft landing,” in which the Federal Reserve manages to reduce inflation without sending the economy into a recession. Treasury Secretary Janet Yellen said over the weekend that she was increasingly confident that a soft landing was possible. Investment bank Goldman Sachs earlier this month reduced the probability that a recession will begin in the next 12 months. A Bank of America survey of global fund managers, released Tuesday, found that about three-quarters of respondents expected a soft landing or no slowdown for the global economy, up from 68 percent in June. The futures market is beginning to reflect investors' more bullish expectations.
Earlier this year, traders were betting on big interest rate cuts in 2023, expecting the Federal Reserve to be forced to ease monetary policy in the face of a recession. In recent months, those expected cuts have largely been delayed until the middle of next year. Both Mortier and Rieder pointed to a recent crisis in the labor market as evidence of a slowdown. Unemployment rose to 3.8 percent in August, higher than economists' estimates and above July's rate of 3.5 percent. While the number of jobs created was higher than expected, the totals for the previous two months were revised downwards. “For the first time there is tangible slack in the workforce,” Rieder said. With further rate hikes looking increasingly unlikely, Rieder said the relatively high yields on Treasury bonds on offer looked attractive. “Now that the Federal Reserve, while not completely finished, is pretty close to it. . . I think you can feel a lot better about taking on a little more exposure to interest rates,” she said. Recommended Mortier said a weaker labor market would weaken consumer demand, putting pressure on corporate margins as companies lower prices to compete for market share.