Written by Davide Barbuscia
NEW YORK (Reuters) – U.S. bond giant Pimco said on Wednesday the U.S. Federal Reserve is likely to start cutting interest rates in mid-year, but the U.S. easing cycle will be slower than in other developed markets. He predicted that it would become a reality.
Economist Tiffany Wilding and global fixed income chief investment officer Andrew Boles say PIMCO supports bond markets in countries such as Australia, Canada and the United Kingdom. 12 Month Outlook Report.
“Central banks that tightened policy en masse to curb the pandemic-induced inflation surge are likely to take a variety of paths when cutting interest rates,” they said. “At a time when many large developed market economies are slowing, the United States has maintained surprisingly strong momentum, and several supportive factors are expected to continue.”
Such factors include large-scale economic stimulus related to the pandemic, rising budget deficits, and the boom in artificial intelligence.
According to PIMCO, the economic policies of the candidates for the next U.S. presidential election are seen as potentially supporting economic growth in the U.S. while potentially hurting growth elsewhere.
“These factors supporting relative U.S. growth are also likely to contribute to firmer U.S. inflation in 2024,” the report said.
Fed officials expect three rate cuts this year, but a recent set of positive economic data could delay an expected shift to more accommodative policy rates.
PIMCO expects a so-called soft landing for the U.S. economy, a scenario in which high interest rates suppress inflation without pushing the economy into recession, but said the risk of an economic contraction or higher-than-expected inflation remains high. .
“Persistent inflation risks appear to be most elevated in the United States; elsewhere, recession risks remain a key concern,” the report said.
Credit markets view mortgage-backed securities from U.S. government agencies as more attractive, favoring high-quality corporate bonds over higher-yielding but riskier corporate bonds from companies sensitive to potential economic downturns.
(Reporting by Davide Barbuscia; Editing by Franklin Paul)