Despite what the statements from the Central Bank indicate, Investor Hugh Hendry believes that the Federal Reserve will not raise interest rates again this year. Fed Chair Jerome Powell had mentioned the possibility of one or two more rate hikes, but Hendry is convinced that they are done raising rates. He acknowledges the difficult task faced by the Fed but argues that there are signs of trouble emerging from the domestic banking sector.
Although inflation might seem more under control, Hendry points to recent failures and rescues in the banking industry as evidence of ongoing turmoil. He mentions the shortcomings of Silicon Valley Bank and Signature Bank, JPMorgan’s rescue of First Republic, and the merger between Credit Suisse and UBS. According to Hendry, these events indicate more trouble to come, and he believes that a recession is brewing in the United States.
The contributing factors to the current inflation
He believes the banking system should restrict depositors’ transfers from their bank accounts into higher-yielding instruments such as US Treasuries. This, coupled with lower deposits and tightening credit conditions, puts pressure on the banking system. Hendry suggests that traditional banking as we know it is no longer viable and that the future of banking, referred to as “banking 2.0,” remains uncertain.
Another area of concern is commercial real estate, which experts expect to experience a downturn. Megan Horneman, chief investment officer at Verdence Capital Advisors, believes that a soft landing for this sector is unlikely. She highlights deteriorating balance sheets, cracks in the labor market, an imploding commercial real estate market, and ongoing banking stress as factors contributing to the pessimistic outlook.
The News Gist
In summary, Hugh Hendry disagrees with the Federal Reserve’s plan to raise interest rates further this year, citing ongoing banking problems as evidence. He believes a recession is imminent and suggests that the traditional banking model is no longer viable. Additionally, concerns are growing regarding commercial real estate, with experts predicting a challenging future for this sector.
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Source: Yahoo! Finance
