Opening Statement from the April 2019 Intelligent Investor
Originally published on April 4, 2019 (pre-market release)
Interest Rates
In the December 2018 Intelligent Investor and Market Forecaster, we discussed our view that the Federal Reserve was not likely to raise rates in 2019 prior to June 2019. During its recent meeting in February, the Fed made several statements pointing to a low chance of rate hikes prior to June 2019 confirming our previous sentiment.
It is important to follow various interest rate expectations because this is a variable that has been significant in influencing investor sentiment for quite some time. It may be of interest to note that by late December 2018, Goldman Sachs had lowered its estimate from four to three rate hikes. More recently, Goldman reduced its estimate to one hike for the entire 2019 year.
At the end of 2018, both JPMorgan and Barclays felt the Fed would raise rates four times in 2019. Two months later JPMorgan cut its forecast to two rate hikes for 2019. But by March 2019, after the Fed’s latest meeting, JP Morgan cut its rate forecast to one hike for 2019. Barclays has cut its previous forecast of four rate hikes to two in 2019.
Most investors have interpreted the Fed’s latest meeting in March to mean that no more rate hikes are expected for 2019. We do not agree with this interpretation (as discussed in an audio on the website).
Interestingly, more than 90% of investors believe the Fed will cut rates by 25 basis points before the end of 2019. This expectation is in contrast to previous Fed fund futures data prior to the Fed’s March meeting that that implied investors were expecting one rate hike in 2019. Although it is a possibility, we currently see no supporting evidence that would justify a rate cut in 2019. In fact, we believe the Fed will
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