Barbara Reinhard, CFA
Senior Managing Director, Chief Investment Officer, Multi-Asset Strategies and Solutions
Federal Reserve Chair Jerome Powell spoke at a forum in Washington this week, cautioning that persistent inflation and a strong U.S. economy will likely delay any Fed rate cuts until later this year. This idea of a bumpier disinflationary path is in line with our previous posts, which hypothesized that disinflation’s last mile could take longer than expected. The market seems increasingly to agree: It is now pricing in only two quarter-point rate cuts for the year, down from a heady six cuts back in December.
Risk assets have struggled in the last month, with the major US indices closing below their 50-day moving average for the first time since last November. Bitcoin, which can be viewed as a proxy for risk appetite, has fallen almost 20% from its peak in March while gold, which many see as the go-to safe haven asset, has climbed around 20%.
A divergence seems to be brewing: Recent economic data has been quite strong, yet the price action of various asset classes don’t seem to reflect that strength. As we mentioned in a previous post, “the risk/reward ratio has probably shifted now that everyone is optimistic and things are priced for perfection; these are the times to be careful.” Given the seeming emergence of a moodier, more risk-averse market sentiment, a cautious approach to risk assets may be warranted.
Maverick Lin contributed to this article.