- The US Federal Reserve is expected to raise its key interest rate next week for the fourth time this year – to a range of 2.25% to 2.5%.
- Paul Tudor Jones, a legendary investor, says this hike “will be the last one for a long time.”
- A few months ago, Fed policymakers indicated they would probably increase interest rates three times in 2019.
- Recently, the Fed has signalled a potential turning point for the rate-hike path as the economy has shown some signs of slowing down.
The Federal Reserve is expected to raise its key interest rate next week for the third time this year, and the legendary investor Paul Tudor Jones says it will be “the last one for a long time.”
The market has priced in a 67.5% probability that the Fed will raise its benchmark fed funds rate, the cost of borrowing money, to a range of 2.25% to 2.5% next week, according to data from Bloomberg. During the meeting, policymakers will also release fresh forecasts for the rate path for next year and beyond.
“I don’t think they’re going to hike in 2019,” Jones, the funder of Tudor Investment, told CNBC in an interview on Monday.
Just a few months ago, Fed policymakers had indicated they would probably increase interest rates three times in 2019. But more recently, they have signalled a potential turning point for its rate-hike path as data has shown a slowing housing market, cooling job gains cooling, and inflation that has shown no signs of rising above the Fed’s 2% target.
Last month, in an onstage interview, Fed Chairman Jerome Powell told Dallas Fed chief Robert Kaplan that policymakers may need to “slow down” amid growing uncertainty. Powell later repeated that claim by saying rates are only “just below” a neutral level, a remark that sent markets soaring as traders took it to mean fewer interest-rate hikes were coming.
Central banks always look in the rearview mirror, Jones said, adding that that approach is not the best way to manage an economy. The 64-year old, who started his investing career as a cotton trader, says he believes commodity data is a leading indicator the Fed should be watching.
“Right now we have the Goldman Sachs commodity index down about 15% over the past 40 days,” Jones said.
“And you go look at those times through history, you find it typically is happening during cutting cycles, not hiking cycles. So this is different this time. We are hiking with this really contemporaneous set of very important data telling you ‘Watch it because you could be hiking at exactly the time you should be cutting.'”
The Federal Open Market Committee held rates near zero after the Great Recession to speed up the economic recovery and has raised borrowing costs eight times since late 2015. The last time was in September, when the Fed raised its key rate by 25 basis points to a range of 2% to 2.25%. The hike was one of the triggers the stock market’s “Red October.”
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