Are rate cuts actually coming? How investors are dealing with the delay

The market has pared back expectations for rate cuts here and internationally, forcing more investors to take matters into their own hands.

“The interest rate curve is now telling us perhaps not to expect that rate cuts until the very end of this year, if there are coming at all.” Salt Funds Management’s head of global diversified funds Greg Fleming told Markets with Madison.

“The US economy has just gone from strength to strength. Price pressures are still remaining sticky there, full employment is in place.”

It was a similar situation in New Zealand where domestic price increases remained sticky with growth of 5.9 per cent in the year to March, despite the headline consumer price index rate falling to growth of 4 per cent.

More economic forecasters had also delayed rate cut hopes in Australia last week, some now delaying cuts to 2025, according to JB Drax Honore Asia Pacific chief strategist Sean Keane.

Fleming expected the US Federal Reserve would make one symbolic cut to its wholesale rate this year, and may need to move soon to avoid involving itself the election cycle.

Rate cuts may be required here sooner, as Fleming said New Zealanders were more vulnerable to high interest rates because more wealth was tied up in residential property.

In his latest research report, shared with Markets with Madison, Fleming focused on the slow decline in inflation and uncertain rate projections in developed economies and cited a loss of central bank credibility as a cause for more self-directed “quasi-trading behaviour”.

This was especially evident among younger investors who were pouring money into stocks aligned with themes, such as artificial intelligence.

Central banks in the developed world are in a race to cut interest rates - as soon as their inflation price figures and labour markets allow. Photo / AP

“They definitely don’t trust the big technocrats to manage their interests any more,” Fleming said of investors.

The reason why?

“Central banks and government finance specialists globally have been off the card in terms of what they’ve predicted and how they’ve reacted to it. And they’ve also been very defensive.”

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Disclaimer: The information provided in this programme is of a general nature, and is not intended to be personalised financial advice. We encourage you to seek appropriate advice from a qualified professional to suit your individual circumstances.

Madison Reidy is the host of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.