Fed Rate Cuts Uncertain: Altaf Kassam Warns US Economy of Disruptions

Altaf Kassam, head of investment strategy at State Street’s EMEA region, has cautioned that the US economy may face challenges in 2025 if the Federal Reserve does not act promptly on interest rates. During a recent appearance on CNBC’s “Squawk Box Europe,” he noted that traditional monetary policy mechanisms seemed to be inefficient, leading to potential delays in the transmission of any changes made by the Fed to the real economy.

He explained that US consumers and companies had taken advantage of lower interest rates during the Covid-19 era to refinance their debts on long-term, fixed-rate bases. This means that the impact of higher interest rates might not be immediately felt but could surface later when refinancing is due. Kassam warned that if rates remained at current levels until 2025 when a significant level of refinancing was expected, it could lead to disruptions in the economy.

Despite expectations of near-term rate cuts by the Fed, recent inflation data and strong economic indicators have diminished these hopes. San Francisco Fed President Mary Daly emphasized that there was no rush to cut rates, given the robust economy and labor market. This contrasts with earlier expectations of multiple rate cuts this year, with markets now scaling back their projections.

While some banks have adjusted their forecasts based on the Fed’s stance, State Street’s outlook for a June Fed rate cut remains unchanged. Despite shifting expectations in the market, Kassam highlighted the complexity of navigating economic policy amidst changing global dynamics.

In summary, Altaf Kassam has warned that if interest rates remain high until 2025 when significant refinancing is expected, it could lead to disruptions in the US economy. While many expect near-term rate cuts by the Federal Reserve, recent inflation data and strong economic indicators suggest otherwise. The European Central Bank is still expected to lower rates in June, but some banks have adjusted their forecasts based on changing global dynamics.