Advertisement
Features

David Rosenberg: Fed may be getting ready to cut

Federal Reserve chairman Jerome Powell looks as though he is now getting ready to cut interest rates, says David Rosenberg, chief economist at Gluskin Sheff.

950_MW_P17_Strategy_Col
Jerome Powell of the Federal Reserve

Federal Reserve chairman Jerome Powell looks as though he is now getting ready to cut interest rates, says David Rosenberg. At his latest speech in Chicago this week, the head of the US central bank who has tried so far to strike a tough tone on monetary policy sounded far less "hawkish" than he has in the past. He made no effort, notes Rosenberg, to counter market expectations that there will be two rate cuts before the end of the year. Powell also noted that at some point in the future, US interest rates will once again hit the "ELB" (effective lower bound, or 0%), and that the central bank has to be ready for that.

Advertisement - Article continues below

The nod to lower rates helped markets rally strongly in the middle of the week. "Market-based odds of a move as early as July have shot up to 50-50 from just 20% a month ago." But while this "could certainly spark a brief rally," don't get too excited, says the oft-bearish Rosenberg. The Fed typically only starts to cut rates when the economy is heading for (or is already in) recession. "Investors with long time horizons... know that you don't go long on the first rate cut; you go long on the last."

One big risk in the next recession is that lenders to companies now have far less protection than at any time in the past (because the conditions "covenants" attached to loans are so lax), which means that they will lose more money during the downturn, as corporations default on their debt. This is how the next economic recession could turn into a financial one. "Hold on to your hat," he warns.

Advertisement
Advertisement

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
The British equity market is shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Why Wall Street has got the US economy wrong again
Economy

Why Wall Street has got the US economy wrong again

The hiring slowdown does not signal recession for the US economy. Growth is just moving down a gear, says Brian Pellegrini.
25 Oct 2019
Share tips of the week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
7 Aug 2020

Most Popular

Don’t despair on dividends – these companies could be set to bring them back
Income investing

Don’t despair on dividends – these companies could be set to bring them back

The value of dividends paid out by UK stocks has plummeted this year as companies “rebase” their payment policies. But things could soon start to look…
6 Aug 2020
Gold hits the big $2,000 level – are Aim miners about to play catch up?
Gold

Gold hits the big $2,000 level – are Aim miners about to play catch up?

With the price of gold shooting through $2,000 an ounce, the yellow metal looks unstoppable. Things are so bullish, even Aim-listed junior gold miners…
5 Aug 2020
Too embarrassed to ask: what is “real return”?
Too embarrassed to ask

Too embarrassed to ask: what is “real return”?

MoneyWeek's latest "too embarrassed to ask” video explains what a real return is and why it's so important for investors.
5 Aug 2020