Fund managers left guessing about US rate rise

US federal reserveFund management firms have reacted to the Federal Reserve’s decision to hold interest rates.

David Page, senior economist at Axa Investment Managers, says the Fed decision was widely predicted but the Fed adopted a more cautious tone in the light of softer economic data.

Yesterday the Fed revised its growth estimate for 2015 lower – from an upper band of 2.7%, to 2% – and fewer members of the Federal Open Market Committee (FOMC), the Fed’s monetary policy committee, predict multiple rate increases this year.

The Fed recognised improvement in the economy since its last meeting, with a moderate expansion, more job gains and a tentatively positive turnaround in household spending. But the Fed also forecasted unemployment to be higher, notes Page, to reach about 5.2% from 5%.

Page says that FOMC participants’ interest rate forecasts suggest “a greater chance that the Fed will only enact one hike in 2015, followed by four hikes in 2016”.

Rick Rieder, chief investment officer of fundamental fixed income at BlackRock, says: “Following yesterday’s statement, we still think September is the most likely time for a start raising rates, but agree with Chair [Janet] Yellen that the timing of lift-off is less important than the trajectory of rate change.”

He adds: “Labour markets appear stronger than at any time in the past two decades, wage gains and inflation appear to be following, and the Fed has a window of opportunity to begin its departure from ‘emergency’ policy conditions and slowly take rates to more normal levels.”

Candriam Investors Group predicts that US economic growth will resume after a temporary sharp slowdown in the first quarter, paving the way for the Fed to raise rates in the autumn.

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