Richard Harris, Chief Executive at Port Shelter Investment Management believes fewer interest rate cuts than expected from the US Federal Reserve could lead to market disappointment and limit price up move starting mid-year.
While the Fed's dot plot, a graph reflecting the short-term interest rate forecasts of each Fed official, suggests three upcoming rate cuts, Harris believes there's room for only two.
"I think that's (three rate cuts) fairly ambitious. Because with the US election coming up, we're in a situation where it's going to be very difficult for the Fed to move either up or down during the hot period of the election," he said.
He believe these cuts, which might total to around 50 basis points, will prove to be only cosmetic. It will take the interest rate down to 4.75%, which is still quite high.
After ending their latest meeting on March 20, the Fed officials kept their benchmark interest rate unchanged for a fifth straight time.
In its new quarterly projections, the Fed officials forecast that stronger growth and stubborn inflation would persist this year and next. As a result, they predicted that interest rates would have to stay slightly higher for longer.
The latest forecasts suggest that the policymakers expect the US economy to continue enjoying an unusual combination: A healthy job market and economy in tandem with inflation that continues to cool — just more gradually than they had predicted three months ago
Another factor that Harris believes could weigh on the sentiment is the US election.
"If (Donald) Trump comes in, he is likely to change things. I suspect not for the better. And I think that the markets will probably feel the same if Trump looks as if he is going to win victory in November," he said.
For the entire interview, watch the accompanying video
(Edited by : Shweta Mungre)
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