How many more times will the US Fed raise rates in 2019? Just once, says Vanguard
- The forecast end to the rate increase cycle will put a floor under declining stock markets
- The mutual fund manager expects China’s economic growth to stabilise in second half of the year
The US Federal Reserve would end the current cycle of interest rate increases in 2019 by raising borrowing costs only once, putting a floor under global financial markets, while China’s economic growth may stabilise in the second half, according to Vanguard Group.
The last increase would probably occur in June after nine hikes over the past three years, with the benchmark interest rate finally topping between 2.5 per cent and 2.75 per cent, as global inflation stays below 3 per cent, said Wang Qian, chief economist for Asia-Pacific at the US money manager with US$5 trillion in assets under management, at a briefing in Shanghai on Tuesday.
She also predicted that Chinese policymakers will unveil more fiscal and monetary policies this year to keep growth at the world’s second-largest economy above 6 per cent.
The markets overreacted last year so you don’t need too much good news before the markets stabilise on its own
While the four rate increases by the Fed last year roiled global markets, spurring concern that higher borrowing costs will derail growth, Vanguard is upbeat about global financial markets in 2019, as investors may have overestimated the possibility of a recession.
“The markets overreacted last year so you don’t need too much good news before the markets stabilise on its own,” Wang said. “We aren’t downbeat about the economy and market outlook.”
The year 2018 was a dismal one for equity investors around the world, with the Standard & Poor’s 500 Index losing 6.2 per cent in its worst performance in a decade, benchmarks from Germany to Japan entering bear territories and China’s stock gauge tumbling 25 per cent.
Wang said the US economy was still in the expansionary cycle – though already entering the late stage – and the possibility of an economic recession was only 35 per cent this year.