Former US Fed Vice Chair: "September Rate Cut Less Likely Than Market Expects"

Richard Clarida, former Vice Chairman of the U.S. Federal Reserve (Fed) and economic advisor at PIMCO, diagnosed that market expectations for a rate cut in September are somewhat high. He also emphasized that 'bonds' are the core of mid- to long-term investment strategies and that a generational shift in bonds has begun.

Clarida attended the '2024 Media Round Table' held in Seoul on the 11th and stated, "The Fed may cut rates once this year," adding, "The market expects an 80% chance of a cut in September, but I don't think the probability is that high." He said he cannot be 100% certain about a rate cut in September and added that the final decision will be made based on key economic indicators, including the U.S. Consumer Price Index (CPI) to be released that night in Korean time.

Having served as a global strategy advisor at PIMCO, a global bond management firm, Clarida was involved in U.S. monetary policy as the Fed Vice Chairman from September 2018 to January 2022. Since 2022, he has rejoined PIMCO and currently serves as Managing Director and Global Economic Advisor at its New York office. He is also a professor of Economics and International Relations at Columbia University, holding the C. Lowell Harris chair.

On this day, Clarida highlighted bonds as the core of mid- to long-term investment strategies. He said, "Investor interest is turning back to the bond market," and diagnosed that "the bond market will generate better returns with lower risk compared to other assets." He analyzed that the appeal of bonds is increasing, especially as bond yields are at their highest levels in decades.

He evaluated, "During the low-interest-rate era that lasted more than 10 years, investors had to make considerable efforts to generate additional returns, but now a generational shift in bond yields is taking place." He continued, "From a risk-adjusted perspective, the attractive outlook for bonds over the next five years makes investors reconsider the traditional asset allocation paradigm of '60% stocks, 40% bonds,' and even provides grounds to consider reversing that ratio."

PIMCO expects attractive opportunities in asset-based lending, especially in consumer-related loans driven by strong U.S. consumer demand, as banks withdraw from certain markets. It also anticipates opportunities in commercial real estate bonds due to capital demand changes in the banking sector.

On this day, Clarida also pointed out economic risks that investors should be aware of over the next five years. First is the large-scale fiscal stimulus enacted by the U.S. to promote growth after the pandemic, which has expanded debt to unsustainable levels. The large-scale capital investment and rapid stock price increases driven by the artificial intelligence (AI) boom were also cited as concerns. Additionally, fluctuations in the value of overvalued companies and the vulnerable direct lending market for lower-rated companies were mentioned as risks.

This content was produced with the assistance of AI translation services.