(Bloomberg) — Carlyle Group Inc.’s Jason Thomas is urging investors to prepare themselves for a potential resurgence of inflation that forces Federal Reserve officials to coalesce around an interest rate of 4.5%.
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The head of global research and investment strategy said rates are still “too high” and expects the central bank to cut rates at least twice more after this week’s half-point reduction. But as industries that stalled under the weight of elevated borrowing costs roar back, Thomas said there’s a risk that price pressures re-emerge in the world’s top economy.
That may force money managers to accept that 4% to 4.5% base rates are the “new normal,” he said Thursday on Bloomberg Television. After Wednesday’s Fed policy meeting the federal funds rate range is 4.75% to 5%.
“There are certainly more rate cuts in store, but I suspect that the room to cut is somewhat smaller than implied by futures and the yield curve,” he added.
Traders are pricing in about 70 basis points worth of rate cuts by the end of the year, more aggressive than the half point of reductions forecast for 2024 in the Fed’s so-called dot plot.
“To think that we’re just going to return to 2019 levels of interest rates really requires one to ignore the scale of the changes that have been observed since then,” Thomas said.
–With assistance from Sonali Basak.
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