The head of equity research at State Street Global Markets warned that many signs of pressure are already showing, and the Federal Reserve must cut interest rates as soon as possible.
Marija Veitmane, head of stock research at State Street Global Markets, said that if the Federal Reserve delays interest rate cuts, the US economy will inevitably fall into a downturn.
The Wall Street veteran warned that if the Federal Reserve does not relax monetary policy soon, economic collapse is imminent. She pointed out that although the economic growth data for the last quarter looked good, the interest rate hike had an impact on the strength of the economy.
She said, “Postponing interest rate cuts has a real impact on the economy. Therefore, although we are currently stable to a certain extent, not cutting interest rates may cause economic problems in the future.” Veitmane also predicts that the US economy will “not land, but then collapse”. “We believe this is a very likely economic prospect.”
Investors have been hopeful about a “no landing” outlook. This is the best case scenario where inflation falls and economic growth remains strong.
But Veitmane warned that the economy is already showing signs of pressure from rising interest rates. For example, companies are being hit by rising debt refinancing costs. According to Moody's data, the yield on AAA-grade long-term corporate bonds rose to 5.28% in April.
Higher borrowing costs are also putting pressure on consumers. According to data from the Federal Reserve, commercial bank credit card interest rates rose to 21.6% in February, the highest level in at least 30 years.
Retail spending also appears to be falling because Americans are now “really smart”, Veitmane said. She mentioned the financial reports of consumer-intensive companies such as Starbucks. Starbucks just announced the “weakest” quarterly results other than the pandemic and the 2008 recession. Veitmane said, “We're starting to hear more and more about the breakdown of things.”
Economists have long warned that the risk of high interest rates could plunge the economy into recession. Although US GDP growth and the job market are still rock-solid, the Federal Reserve is not expected to relax monetary policy anytime soon because officials are still concerned about the rate of inflation.
The market generally expects the Federal Reserve to keep interest rates unchanged at the next policy meeting. According to CME's US Federal Reserve's observation tool, most investors expect the Fed to cut interest rates once or twice this year, down from six at the beginning of the year.