Altaf Kassam, State Street’s head of investment strategy in EMEA, warned that the U.S. economy may face challenges in 2025 if the Federal Reserve doesn’t act promptly on interest rates. Speaking on CNBC’s “Squawk Box Europe,” Kassam pointed out that traditional monetary policy mechanisms appeared to be inefficient, leading to potential delays in the transmission of any changes made by the Fed to the real economy.
He noted that U.S. consumers and companies had taken advantage of lower interest rates during the Covid-19 era to refinance their debts on long-term, fixed-rate bases. This means that the impact of higher interest rates might not be immediately felt but could surface later when refinancing is due. Kassam cautioned that if rates remained at current levels until 2025 when a significant level of refinancing was expected, it could lead to disruptions in the economy.
Despite expectations of near-term rate cuts by the Fed, recent inflation data and strong economic indicators have diminished these hopes. San Francisco Fed President Mary Daly emphasized that there was no rush to cut rates, given the robust economy and labor market. This contrasts with earlier expectations of multiple rate cuts this year, with markets now scaling back their projections.
While some banks have adjusted their forecasts based on the Fed’s stance, State Street’s outlook for a June Fed rate cut remains unchanged despite shifting expectations in the market. The uncertainty underscores the complexity of navigating economic policy amidst changing global dynamics.
Kassam advised investors to closely monitor economic developments in both Europe and North America as they work to adapt their strategies amidst shifting global dynamics.
In conclusion, Altaf Kassam has warned investors about potential challenges facing the US economy if interest rates are not lowered promptly by the Federal Reserve. He cautioned that traditional monetary policy mechanisms may be inefficient and delaying any changes made by the Fed could disrupt