Fed Rate Cuts Will Not be as Deep as Market Expects: BlackRock

$9 trillion asset management company BlackRock says the Federal Reserve’s interest rate cuts will not be as deep as the market expects. BlackRock Investment Institute wrote in a note Monday that a resilient economy and inflation remaining sticky may hamper the Fed from making a steep interest rate cut.

The Federal Reserve will decide this week whether it will cut interest rates for the first time in four years. The US has been fighting a difficult battle with inflation since the end of the COVID-19 pandemic. That battle temporarily led to a year-long streak of interest hikes monthly. However, it is expected that the Fed will finally make its first cuts, after leaving interest rates unchanged throughout the summer.

BlackRock wrote that a reduction in interest rates of this magnitude reflects recession fears that are overdone, as well as expectations of a sustained decline in inflation which, instead, is likely to cool off only temporarily. “As the Fed readies to start cutting, markets are pricing in cuts as deep as those in past recessions. We think such expectations are overdone,” the investment institute added.

“It is clearly the time for the Fed to cut rates,” Democratic senators wrote in a letter to Fed Chair Jerome Powell Monday. “In fact, it may be too late: Your delays have threatened the economy and left the Fed behind the curve.”

Also Read: Senator Elizabeth Warren Calls for 0.75% Interest Rate Cut By Fed

BlackRock Says Interest Rate Cuts Won’t be as high as Expected

BlackRock insists that the US Economy is growing stronger. The company says a steep rate cut won’t be necessary to improve it further. “An aging workforce, persistent budget deficits, and the impact of structural shifts like geopolitical fragmentation should keep inflation and policy rates higher over the medium term,” its note said. The asset manager maintains heavier on U.S. stocks, instead, on optimism around the impact of artificial intelligence.

The Fed’s upcoming decision to cut interest rates will have a strong effect on the US markets and cryptocurrency. A rate cut along with the further downfall of inflation is desperately needed in the United States’ current turbulent economy. However, how drastic the cut needs to be remains up for debate leading up to the end of this week. Some experts voice similar concerns to BlackRock, saying high rate cuts could be too steep too soon. There is a growing belief that a steep rate cut could risk sending the markets into further crisis. Therefore, the final decision will be crucial for the immediate future of the country. A steep cut could signal the worry of banks across the US, thus sending stocks and crypto even lower.