Wall Street's major CEOs see the continued inflationary pressure facing the United States economy, and they do not believe that the Federal Reserve will cut interest rates twice more this year to continue easing policy.

In September, the Federal Reserve cut the benchmark interest rate by 50 basis points, marking a turning point in managing the USA economy and inflation outlook. In a late September report, strategists from JPMorgan and Moody's Ratings predicted that there would be two more rate cuts by the end of 2024, and they expected this easing to continue until 2025.

According to CME's FedWatch tool, there is a 98% probability of a 25 basis point rate cut at the November meeting this week. Currently, the probability of another 25 basis point rate cut at the December meeting is 78%.

However, some CEOs seem to be skeptical. At the "Future Investment Initiative" economic conference held in Saudi Arabia last week, when they spoke, they believed that the USA would face sustained inflationary pressures because the country's economic activities and the policies of the two presidential candidates involve developments that could trigger inflation and stimulate the economy, such as public spending, manufacturing localization, and tariffs.

During the FII panel discussions, several CEOs including Goldman Sachs, The Carlyle Group, Morgan Stanley, Standard Chartered Bank, and State Street were asked whether they believed the Federal Reserve would cut interest rates twice again this year, but no one expressed a definite opinion.

Franklin Templeton President and CEO Jenny Johnson stated in an interview last Wednesday, "Honestly, I think inflation is more stubborn. Look at the USA employment and wage reports, I think it's difficult for inflation to drop to the 2% level." She pointed out that she believes there will only be one more rate cut this year.

“Do you remember a year ago, we were all here talking about an economic recession? Will there be a recession? No one is talking about an economic recession anymore.”

Blackrock's Larry Fink also expects a rate cut by the end of 2024.

Fink stated last week in another panel discussion: “I think, to be fair, we will at least cut interest rates by 25 basis points, but having said that, I do believe that global hidden inflation is more severe than ever before.”

He pointed out: “Our government and policies are more likely to cause inflation. Immigration - our onshore policies, all of this - no one asks 'what is the cost'. I mean, historically, we are more of a consumer-driven economy, where the cheapest product is the best, most advanced form of political propaganda.”

According to the US Bureau of Labor Statistics, in September, the US Consumer Price Index (CPI) increased by 2.4% compared to the same period last year, which is a key indicator of inflation. This figure is slightly lower than the 2.5% in August, indicating a slowdown in price growth. The September reading is also the smallest annual reading since February 2021.

Last Friday, new data showed that the pace of job growth in the United States slowed to the lowest level since the end of 2020 in October. However, the market largely ignored this bad news, as the non-farm employment report indicated severe disruptions in the weather and labor market.

Goldman Sachs CEO David Solomon stated that inflation will become more deeply embedded in the global economy than what market participants are currently predicting, implying that price hikes may be more sticky than commonly perceived.

He mentioned: “This does not mean it will rear its head in a particularly ugly way, but I do believe that based on the policy actions taken, it might be more negative than the current market consensus.”

Ted Pick, CEO of Morgan Stanley, went further, stating last Tuesday that loose monetary policy and zero interest rate days are now a thing of the past.

Pick said, "The end of financial repression, zero interest rates, and zero inflation, that era is over. Interest rates will be higher, facing challenges worldwide. The end of 'History'—geopolitics is back, and will be part of the challenges of the coming decades." He referenced Francis Fukuyama's famous 1992 book 'The End of History and the Last Man,' which posited that conflicts between nations and ideologies are now a thing of the past with the end of the Cold War.

Marc Rowan, CEO of Apollo Global, even questioned at a panel discussion on Tuesday why the Fed would still cut rates while so many fiscal stimulus measures support what seems like a healthy U.S. economy. He mentioned the U.S. 'Inflation Reduction Act,' 'Chip and Science Act,' and the increase in defense production.

He stated, "In the U.S., we are all talking about the positives. Going back to your point about interest rates, we have raised rates significantly, yet the stock market is at record highs, there is no unemployment, capital markets can issue at will, are we still stimulating the economy?"

He later added, "I'm trying to remember why we cut rates instead of trying to balance the bottom quarter."

Editor/Lambor