Global asset manager BlackRock has warned that financial markets are pricing in too many rate cuts by the Federal Reserve and underestimating the threat of persistent inflation. In a recent report, the firm said expectations of four to five 25 basis point rate cuts this year appear excessive.
“We believe markets are underestimating inflationary pressures, particularly from new tariffs and loose fiscal policies globally,” BlackRock said. “These factors are likely to keep global borrowing costs higher than pre-pandemic.”
Pointing to the new wave of tariffs proposed in the US and expected retaliatory measures from other countries, the firm argued that these developments will reinforce the high interest rate environment for the foreseeable future.
Economic uncertainty is rising, especially as trade tensions escalate. President Donald Trump’s aggressive tariff policies have stoked fears of a recession and fueled expectations of more monetary easing. But some analysts warn that the Fed’s rapid action could backfire.
JPMorgan economists have sharply revised down their outlook, predicting a 0.3% contraction in GDP this year, compared with an earlier forecast of 1.3% growth.
Despite growing concerns, the Trump administration has given no sign of backing down from its protectionist stance. On Monday, Trump reiterated his belief that the economic hardships are a necessary step toward rebalancing trade, even as recent market turmoil has wiped out $6 trillion in assets.
Greg McBride, chief financial analyst at Bankrate, warned that an early emergency rate cut could further exacerbate market instability.
“Unless the financial system shows signs of serious dysfunction, such as a disruption in the flow of credit, there is little the Fed can or should do,” McBride said in a note. “A sudden rate cut could fuel panic rather than alleviate it.”
*This is not investment advice.
