① A senior financial strategist said that the Federal Reserve will not lower interest rates to very low levels as the market believes, and borrowing costs may indeed rise from now on He predicts that the US and global stock markets may fall by 7% to 12%.
Bill Blain, founder and senior financial strategist of Wind Shift Capital, said that as borrowing costs decrease, households and businesses may breathe a sigh of relief, but they should not be completely reassured because interest rates and inflation will remain high, and this reality may trigger a significant drop in the stock market next year.
He predicts that global stock markets will experience turbulence in the next 12 months. Brian said that the Federal Reserve will not lower interest rates to very low levels as the market believes, and borrowing costs may indeed rise from now on. This may suppress loans, slow down trading, and cause US and global stock markets to fall by 7% to 12%.
I think the crisis we are facing is that when interest rates start to rise, the government cannot continue to boost the economy in an environment of rising interest rates because they have lost market support, "he added.
In the context of credit tightening, he doubts whether the United States can implement stimulus measures like during the pandemic, as people are concerned about the overall debt level and the impact of inflation on the economy.
The reality is that inflation will quietly return to the global economy. Interest rates will have to rise, "he said.
Interest rates will remain high
For investors, Brian's prediction may sound counterintuitive as they have already digested the central bank's significant interest rate cuts. But Brian emphasized that the US economy is facing too much inflationary pressure in the medium term and cannot guarantee aggressive easing policies.
Firstly, the federal debt has swelled to a record high of $35 trillion. Economists point out that rapid government borrowing is a factor that may exacerbate inflation. At the same time, supply chain issues still exist, and given the escalating geopolitical tensions, global trade seems to be more fragmented, which could also push up inflation.
Finally, former US President Donald Trump's threat of high tariffs will impose tariffs on almost all imported US goods, which economists say will ultimately be passed on to consumers.
I think inflation will become more deeply rooted, just like in the 1970s and early 1980s, "Brian said." This will be a very, very different economy, we just need to get used to it
Other forecasters have also warned that the stickiness of inflation may be much greater than market expectations. BlackRock strategists stated in a recent report that the core inflation rate is unlikely to fall back to the Federal Reserve's 2% target, and pointed out that the huge budget deficit and other "huge forces" in the United States will drive prices higher.
This means that investors waiting for borrowing costs to return to near zero levels will suddenly realize. Brian believes that under the "new normal", the interest rate will hover between 4.5% and 6%, which will lead to a "surge" in interest payment compared with the level before the COVID-19 pandemic.
In addition, Brian said that businesses may also be hit. He stated that this does not necessarily indicate a market crash or a wave of 'zombie companies' going bankrupt, but transactions in the private equity sector may slow down, and some of the worst performing companies may go bankrupt.
Finally, with the bursting of the speculative foam in asset prices, the stock price will return to a much more reasonable level.
I believe that the ultra-low interest rates and loose policies from 2010 to 2022 still have significant aftermath, and I think overall stock prices still reflect speculation and low interest rates, "he added." I don't think there is any reason to really expect a significant interest rate cut