State Street, with $3.6 trillion in assets, is counting on the Fed to slash interest rates—’The overall inflation picture supports a cut,’ CIO says
State Street Global Advisors is standing by a contrarian call for the Federal Reserve to cut interest rate as soon as June despite a string of hot economic data that has spurred most traders to push back bets to later in the year.
The $3.6 trillion asset manager remains convinced the central bank will start monetary easing well before the U.S. presidential election in November to avoid being seen influencing the result, according to Boston-based chief investment officer Lori Heinel. The inflation backdrop still supports this move given policy works with a long lag and the quality of recent data prints has been low, she said.
“We still believe a first rate cut in June is likely,” Heinel said. “We acknowledge that recent data puts that call in jeopardy, but the overall inflation picture supports a cut.”
State Street has held firm in its outlook for monetary easing for several months amid big swings in opinion from the rest of the market. Earlier in April, before a data release last week that confirmed a third-straight month of sticky inflation, Heinel said the firm was betting on a half-point cut in June and 150 basis points of easing by the end of the year. She has since tempered her call to 100 basis points, which is still double what markets are anticipating.
Heinel’s comments came after resilient retail sales data drove Treasury yields to fresh highs for the year. Markets are awaiting comments from Fed Chair Jerome Powell later Tuesday, after the bank’s Mary Daly said there’s no urgency to adjust interest rates.
“Data quality has been low, with lots of big data revisions,” Heinel said. “The Fed’s focus on data dependency could be a challenge if taken too literally.”
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