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3% Inflation Isn’t a Problem, Rates Will Fall Soon, Says Asset Manager

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3% Inflation Isn't a Problem, Rates Will Fall Soon, Says Asset Manager

(CTN News) – According to an asset manager, markets are way too optimistic about interest rate cuts because inflation is still high.

Compared with December 2022, inflation in December rose at a higher-than-expected pace of 3.4%, dampening market expectations of imminent interest rate reductions.

On Thursday, James Solloway, chief market strategist for SEI, a Pennsylvania-based asset manager, told MarketWatch that 3% inflation is not necessarily problematic.

According to Solloway, “what is problematic is market expectations, which seem to be pointing towards a return to the environment that existed prior to Covid.”

As a result of the Great Recession, the Federal Reserve slashed benchmark interest rates until they reached 0% to 0.2% at the end of 2008. Following 2015, they gradually increased, but remained low for the remainder of the decade.

The economy was once again hit by the pandemic in March 2020, resulting in a further reduction in interest rates to near zero. Two years later, the Fed began raising rates again in an attempt to cool the rising inflation rate.

It was announced in December that the central bank would be cutting interest rates three times in 2024, exciting market participants as markets ended the year near all-time highs.

Although inflation has declined from a four-decade high reached in June 2022, it remains above the Federal Reserve’s target rate of 2%. There was an increase in job creation in December exceeding forecasts, indicating that the economy is also performing well.

The labor market remains tight across other major economies, indicating that wages will not fall to the level that would result in an interest rate cut, Solloway wrote in a report published on January 3.

Consequently, “inflation is far from dead” and rates are likely to remain high for a longer period of time.

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