Low confidence sees SAR housing market remain sluggish despite lenders falling in line with Fed
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United States interest rates will slide another 50 basis points this month and July and remain steady for at least 12 months, according to Investec Asset Management.
Speaking yesterday from London, the manager of the US dollar high income bond for Investec, Paul Griffiths, said the company expected economic weakness in the US to continue for some time. The potential for further equity-market volatility and a surprise slide in consumer confidence meant the Fed would still be cautious, he said.
'We are still very much of the view that economic weakness will be the prevailing environment . . . another 50 basis points is pretty much in the bag.'
As Hong Kong's currency is pegged to the US dollar, the Hong Kong Association of Banks usually follows the Fed's move on rates, making it cheaper for residents to obtain home loans. But five cuts this year have done little to support a property recovery, with analysts saying that confidence in housing policy and employment prospects needed to be restored.
Mr Griffiths also said yesterday that the market place remained divided on whether the Fed would cut rates for a sixth time this year by 50 basis points on June 27 or take a step back and cut by 25 basis points. He said Investec was calling for 25 points this month and 25 the next, with the Fed funds rate largely on hold at about 3.5 per cent for the ensuing year. 'We are not calling for rate rises until almost a year out from here,' he said.
Most forecasters expected the Fed to come to the end of its easing policy in the next couple of months, taking the total since January to seven rate cuts in as many months. The US economy had slowed to close to zero per cent growth this quarter, according to economists.
Merrill Lynch economist Bruce Steinberg said in a report this week that the investment bank was changing its forecast for June 27 from a 25 basis point cut to 50 points.
This would bring the funds rate to 3.5 per cent.
'The reason why we are changing our call is that the economic data continues to deteriorate,' Mr Steinberg said.
There had been a further deterioration in the labour-market indicators and the industrial sector was still declining with capacity utilisation down to 76 per cent - the lowest in 18 years, he said.
'We think the Fed will need to try to get ahead of this again.'
Mr Steinberg added that it was possible there would be more easing after this month, depending on upcoming monthly data such as consumer confidence.
The behaviour of the US consumer - yet to be scared by rising unemployment - remains the biggest risk to the economy's stability.