Last Updated on March 30, 2023 by Bitfinsider

The largest asset manager in the world, Blackrock, released its weekly commentary on Monday, outlining the condition of the American economy and the reasons the Federal Reserve will not be lowering interest rates this year.

Blackrock’s strategists wrote in a report that “Markets have been quick to price in rate cuts as a result of the banking sector turmoil and the Fed signaling a coming pause”, noting: “We don’t see rate cuts this year – that’s the old playbook when central banks would rush to rescue the economy as recession hit. Now they’re causing the recession to fight sticky inflation – and that makes rate cuts unlikely, in our view.”

He added: “Stocks have held up due to hopes for rate cuts that we don’t see coming. We think the Fed could only deliver the rate cuts priced in by markets if a more serious credit crunch took hold and caused an even deeper recession than we expect. Inflation is likely to prove even stickier than the Fed expects without a deep recession, in our view. The February U.S. CPI data confirmed our view that inflation is still not on track to settle at the Fed’s target.”

“Recession is foretold as central banks attempt to bring inflation back down to policy targets,” the Blackrock strategists added. In contrast to previous recessions, rate drops are not anticipated to support risk assets, in our opinion.

“In the U.S., it’s now evident in the financial cracks emerging from higher interest rates on top of rate-sensitive sectors. Higher mortgage rates have hurt sales of new homes. We also see other warning signs, such as deteriorating CEO confidence, delayed capital spending plans and consumers depleting savings,” he concluded.