Major central banks are holding interest rates steady, but Neuberger experts warn that these decisions should not yet be interpreted as pauses.
According to assessments from Neuberger, the United States Federal Reserve, the European Central Bank, and the Bank of Japan are steering toward a synchronized yet relatively short cycle of interest rate hikes designed to contain inflation, financialounge.com reported.
Financial conditions are currently absorbing much of the heavy lifting from previous monetary tightening. For investors, the central question is how credit markets and broader economic growth will handle the adjustments ahead.
Neuberger managers noted that much of the anticipated tightening is already priced into markets.
“Nel complesso, ci aspettiamo che i tassi statunitensi si muovano in un intervallo intorno agli attuali livelli, con una tendenza a scendere a fronte di qualsiasi segnale di risk-off,” financialounge.com reported Neuberger managers stating.
This outlook supports favoring longer duration in the United States, as markets have incorporated more rate hikes than the Federal Reserve has signaled. Neuberger professionals explained that a policy-induced slowdown would likely drive yields downward. In Europe, the firm extended duration slightly, concentrating on the five-to-ten-year curve.
At the same time, the firm returned its positioning on France to neutral after viewing the recent sell-off as largely excessive. Across the continent, managers spotted convergence opportunities in Italy and Greece across five-to-seven-year maturities, alongside Central and Eastern Europe. Local macroeconomic and political dynamics will ultimately dictate the precise timing and scope of each institution’s actions.
Neuberger experts highlighted his consistent references to the committee’s data-dependent approach and the need to gather more information before making further adjustments.
Neuberger’s base scenario anticipates a 25 basis point rate increase by the Fed in December, followed by a potentially prolonged pause. The neutral rate is expected to settle between 4% and 4.25%. Additional hikes remain possible if energy prices stay elevated or pass through into core inflation.
Meanwhile, both the European Central Bank and the Bank of Japan face rising inflation pressures and left rates unchanged last week. Neuberger expects the Bank of Japan to deliver a 25 basis point hike in December, with another possible move in the second quarter of next year.
The European Central Bank presents a more complex picture, contending with rising energy costs, volatility in French government bonds, and an ongoing leadership succession race. Neuberger analysts stated that a December rate hike remains likely if gas prices stay above the 77 euro threshold outlined in the ECB adverse scenario. A pause is expected next year as attention shifts from inflation to economic growth.
