Invesco: US monetary policy is overly tight, more concern should be placed on its long and variable lagged effects
Kristina Hooper, Chief Global Market Strategist at Invesco, stated that US monetary policy is too tight and should pay more attention to its long and variable lagging effects. She believes that the Federal Reserve is unlikely to start cutting interest rates this week, but the possibility still exists and is increasing. She pointed out that US monetary policy is too tight, which may have a negative impact on the economy. In addition, it is expected that the Bank of Japan will raise interest rates and reduce bond purchases, while the Bank of England may also start cutting interest rates
According to the financial news app Smart Finance, Kristina Hooper, Chief Global Market Strategist at JPMorgan, expressed her views on the global central bank interest rate decision expectations. Regarding whether the Federal Reserve will follow the footsteps of the Bank of Canada, she pointed out that William Dudley, former president of the Federal Reserve Bank of New York, who had always advocated "maintaining high interest rates for a longer period," has dramatically changed his stance recently. He wrote last week that the Fed should start cutting interest rates this week, explaining that the situation has changed and therefore his thoughts have changed as well. The Fed should start cutting interest rates, preferably at the upcoming interest rate decision meeting next week.
Kristina Hooper believes that it is unlikely for the Fed to start cutting interest rates this week, but the possibility still exists and is increasing. In my opinion, cutting interest rates is a wise decision. She believes that considering the progress the United States has made in combating inflation and the economic conditions, U.S. monetary policy is too tight.
The difference between the federal funds rate and the core personal consumption expenditure (PCE) has reached the highest level since 2007. The proxy fed funds rate is currently at 5.9%, which can reflect the true inflation after comprehensive consideration of other monetary policy tools.
At this stage, she believes that the Fed should be less concerned about inflation reigniting and more concerned about the long and variable lag effects of monetary policy, which may have serious negative impacts on the U.S. economy in the coming months.
As for the Bank of Japan, the market is starting to expect the Bank of Japan to raise interest rates, and there are good reasons for this as interest rates and prices seem to be reinforcing each other.
She also expects the Bank of Japan to raise interest rates and reduce bond purchases. This is a significant and reasonable step in the policy normalization process, especially if the Fed is about to cut interest rates, which should continue to strengthen the yen relatively.
Furthermore, she believes that the Bank of England will follow the footsteps of other major central banks and start cutting interest rates. A statement submitted to Parliament by the UK Chancellor of the Exchequer, Rachel Reeves, on July 29 may prompt the Bank of England to cut interest rates, as the new Labour government faces some serious fiscal issues, leading to cuts in government spending and potentially increased taxes. This could create real obstacles for the economy, providing another reason for the Bank of England to cut interest rates.
She believes that cutting interest rates may in turn be a positive factor for UK stocks