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How these six experts are playing the Fed rate cut

Federal Reserve policymakers cut interest rates by another quarter of a percentage point on Wednesday, and this is what market watches had to say

David Chao, Invesco
Global market strategist, Asia Pacific (ex-Japan)

The Fed’s easing monetary policy should be positive for stocks and other risk assets.

Despite the rate cuts, the US dollar is likely to remain strong against other currencies since central banks around the world respond accordingly with rate cuts of their own.

I have a strong bias towards risk assets especially in this easing monetary environment and in light of global fixed income products generating negative yields.

Lower interest rates should cause investors to take greater risks and seek alternative asset classes that have higher returns.

David Chao, Invesco
Global market strategist, Asia Pacific (ex-Japan)

The Fed’s easing monetary policy should be positive for stocks and other risk assets.

Despite the rate cuts, the US dollar is likely to remain strong against other currencies since central banks around the world respond accordingly with rate cuts of their own.

I have a strong bias towards risk assets especially in this easing monetary environment and in light of global fixed income products generating negative yields.

Lower interest rates should cause investors to take greater risks and seek alternative asset classes that have higher returns.

Andy Wong, Pictet Asset Management
Senior investment manager, international multi-Asset team

The Fed cut interest rate by 25bps as expected but failed to provide strong direction for the next move.

While the fear of trade war and an imminent decoupling eased as Trump's red lines on various issues blurred, longer term challenges such as demographics, indebtedness, and inequality remain.

We expect volatility to remain elevated. Market rotation can continue for a bit and we have added exposure in Japan and UK/European equities as well as Italian BTPs. Longer term, secular themes of technology and Asian consumption remain.

Tai Hui, JP Morgan Asset Management 
Asia chief market strategist

Bond investors will need to recognize the possibility that the Fed is not ready to cut rates continuously into 2020.

This implies some rebound in short end yields is likely, especially if upcoming economic data remain solid. This could bring the US Treasury curve to bearish flatten.

For Asian equities, high dividend equities are still an area where investors can find opportunities to build their portfolio to generate income.

Andrew Wilson, Goldman Sachs Asset Management 
CEO for EMEA and head of global fixed income

Looking ahead, we think Fed policy will be guided by growth and trade policy, with the two being closely linked.

In a scenario of improving growth and a de-escalation of trade tensions, we would expect unchanged policy until core inflation picks-up on a sustained basis.

Should growth remain lackluster and trade policy uncertainty remain elevated, we think the Fed will carefully curate its communications to preserve policy optionality, which will likely include additional rate cuts.


Paul Hsiao, PineBridge Investments
Economist, global economic strategy

Our outlook for risk assets at the start of the year hinged on a question: can the Fed and China successfully engineer soft landings after implementing growth-restraining policies in 2017 and 2018?

So far it seems policymakers on both sides of the pacific have delivered, albeit amid much tougher economic and political conditions.

Looking ahead, we expect the Fed to cut rates twice more in the next 12 months – a marginally more hawkish forecast than consensus expectations for three cuts.  

We also expect yields on 10-year US Treasuries to trend around the current levels of 1.75%-2%. That would keep the important yield curve relationship at very flat, though not inverted levels, consistent with our forecast of slower global growth over the next year but not a recession. 

Lee Ferridge, State Street Global Markets
Head of multi-asset strategy

The market had been pricing one more cut for this year and at least three over the next 12 months. However, the FOMC dots failed to confirm this dovish stance and, while the Fed has left the door open to more cuts if needed, these are far from a done deal.

Generally improved domestic data, the highest core consumer price index reading since 2008 and its own models indicating that rates should remain largely on hold explain the Fed’s stance.

A less accommodative Fed is likely to be bad news for risky assets (equities and high-beta/EM FX) while it is also likely to lead to further yield curve inversion. Expect the dollar to rally to new highs.