PIMCO says it's bracing for a 'harder landing' for the global economy, warning investors are too hopeful about interest-rate cuts
Bond fund leader PIMCO is bracing for a"harder landing" of the global economy, saying investors appear overly confident that policymakers will be able to lower interest rates in the not-too-distant future., suggests that borrowing costs will stay high for longer than markets are currently pricing in, causing an economic downturn as central banks in Europe and US press ahead with their fight against inflation.
After raising benchmark rates by a staggering 500 basis points since last spring, the Federal Reserve has signaled there will be at least two more 25-basis-point increases.
"We would argue that the market may still be too confident in the quality of central bank decisions and their ability to engineer positive outcomes," Ivascyn said."We think the market is a bit too optimistic about central banks' ability to cut policy rates as quickly as the yield curves are implying," he added.
While US inflation has declined significantly from the 40-year highs reached last summer, it still remains double the Fed's 2% target, coming in at an annual pace of"Today we have a real legitimate inflation problem. It will likely be harder for central banks to cut policy even if the economy is weakening as long as inflation is comfortably above their [2 per cent] targets," he told the FT.
He added that the fixed-income asset manager is moving to high-quality government and corporate bonds to be"more defensive and more liquid."
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