In an exclusive interview with CNBC, Altaf Kassam, the head of investment strategy for State Street in EMEA, expressed his concerns about the U.S. economy facing challenges in 2025 if the Federal Reserve does not take action soon regarding interest rates. Kassam explained that traditional monetary policy mechanisms have become less effective, meaning any changes made by the Fed will take longer to impact the real economy. This delay could potentially lead to significant shocks in the future.
Kassam highlighted two key factors contributing to this shift in monetary policy transmission. Firstly, U.S. consumers and businesses have taken advantage of low-interest rates during the Covid-19 era to secure long-term fixed-rate mortgages and refinance debts at lower rates. As a result, the effects of any future interest rate hikes might only be felt when these loans come up for refinancing. Despite concerns about rising interest rates, current economic conditions have not yet caused significant financial stress for consumers and companies. However, Kassam emphasized that if rates remained elevated until 2025 when a large wave of refinancing was due, it could lead to more challenges.
Recent comments from Federal Reserve officials suggesting no immediate need for rate cuts due to strong economic indicators and inflation levels have shifted market expectations. Initially anticipating multiple rate cuts, investors are now adjusting their forecasts, with some banks predicting only one rate cut in December. While the European Central Bank is still expected to lower rates, adjustments to Fed rate cut expectations have also influenced these forecasts. Despite these changes, State Street does not anticipate any alterations to its prediction of a Fed rate cut in June.
In conclusion, Altaf Kassam’s warning highlights the potential risks facing the U.S economy if interest rates do not decline soon enough while monetary policy mechanisms become less effective over time.
During an interview on CNBC yesterday morning, Altaf Kassam raised concerns about how rising interest rates could negatively impact America’s economy by 2025 unless immediate action is taken by the Federal Reserve (Fed). The head of investment strategy for State Street Europe Middle Asia & Africa (EMEA) warned that traditional monetary policy tools may no longer be as effective as they once were – meaning any changes made by the Fed would take longer to affect real economic growth.
Kassam pointed out two key factors contributing to this shift: firstly; US consumers and businesses took advantage of low-interest rates during COVID-19 pandemic era securing long term fixed-rate mortgages or refinancing debts at lower costs which means future interest rate increases will be felt later when these loans come up for refinancing.
Secondly; despite concerns about rising interest rates currently economic conditions are stable enough not causing financial stress yet but if they remain high till 2025 when a huge wave of mortgage refinancing comes due then it could pose more problems.
Recent comments from Fed officials suggesting there’s no need for immediate rate cuts because of strong economic indicators and high inflation levels have changed market expectations from multiple cuts earlier predicted now some banks see only one possible cut happening in December.
European Central Bank is still expected to lower its rates but adjustments made so far on Fed’s interest cut predictions affected these projections too.
Despite all this change State Street keeps its stance that Fed will make one more cut before June as predicted earlier but overall uncertainty looms over whether or not quick action can prevent a recession down line
