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Rate hike halt: how WM CIOs are reacting to the Fed’s U-turn

Wealth management CIOs in Zurich and Geneva react to the Fed’s pause on rate hikes.

Peter Ahluwalia

CIO, Swisspartners

While in New York, Swisspartners CIO Peter Ahluwalia told Citywire Switzerland that the Fed’s pause did not come as a surprise to him.

‘It is not unexpected. My view looking around here is that rates are at the right level at the moment. Yes, the economy has softened, but it’s not a disaster. People are still productive and spending money.’

Ahluwalia believes that the Fed was spooked by market moves, which were exacerbated by the government shutdown and an overall global growth lag.

‘I think they looked at market movements, and I think those worried them somewhat. My guess is that they saw the slowdown in home sales and also saw the slowdown in the economy. I think they’ve done the right thing, and I think they’re right to pause, assess and see how things do,’ he said.

Ahluwalia said he believes an increase in productivity spurred by new technology will balance out any inflation that the US may face.

He said: ‘In the bigger picture, we’re all working harder and being more productive. I think this is a powerful deflationary juggernaut. With autonomous driving, for example, I can work on my laptop or my smartphone. My employer won’t pay me for that time, but my productivity is increasing. That’s pretty deflationary.’

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Peter Ahluwalia

CIO, Swisspartners

While in New York, Swisspartners CIO Peter Ahluwalia told Citywire Switzerland that the Fed’s pause did not come as a surprise to him.

‘It is not unexpected. My view looking around here is that rates are at the right level at the moment. Yes, the economy has softened, but it’s not a disaster. People are still productive and spending money.’

Ahluwalia believes that the Fed was spooked by market moves, which were exacerbated by the government shutdown and an overall global growth lag.

‘I think they looked at market movements, and I think those worried them somewhat. My guess is that they saw the slowdown in home sales and also saw the slowdown in the economy. I think they’ve done the right thing, and I think they’re right to pause, assess and see how things do,’ he said.

Ahluwalia said he believes an increase in productivity spurred by new technology will balance out any inflation that the US may face.

He said: ‘In the bigger picture, we’re all working harder and being more productive. I think this is a powerful deflationary juggernaut. With autonomous driving, for example, I can work on my laptop or my smartphone. My employer won’t pay me for that time, but my productivity is increasing. That’s pretty deflationary.’

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Andreas Bickel

CIO, Blackfort Capital

According to Blackfort Capital CIO Andreas Bickel, the Fed’s pause will ‘definitely’ help prevent a recession, although he is still optimistic about US growth.

‘Given the weaker forward-looking economic data, it could well be that hiking for 2019 is over before it even started,’ he said.

‘I don’t expect there will be a recession. I expect the US to grow around 2%, but it depends on a lot of uncertain political risks.’

However, while he does not see a recession around the corner, he believes the Fed’s sudden change in tune from last year could be a cause for concern. 

‘The world has not changed so much in a short time, but the Fed went from euphoria to near recession. I’d say it was surprised by the weaker data, and by the severity of the shutdown. It has all negatively impacted the expected US GDP growth,’ he said. 

Like Ahluwalia, he believes the Fed has made the right move, saying: ‘It should definitely not try to slow down the economy, for example, by rising rates or by strongly shrinking the Fed balance sheet.’

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François Savary

CIO, Prime Partners

Prime Partners’ François Savary believes that halting hikes may have prevented a recession – at least, for now.

He said: ‘At least it should help reduce the risk of a self-fulfilling recession from market conditions. To, at least temporarily, stop reducing liquidity is a good insurance measure and it limits the risk of a recession in 2019. Looking into 2020 is another matter.’

Echoing Ahluwalia’s sentiment, Savary said the abrupt change of plans was likely triggered by the rocky market in December.

He said: ‘The main reasons were certainly the very unsettled market conditions in December, the lack of visibility on economic developments and the risk of a self-fulfilling recession.’

He also noted that this move should not greatly affect inflation. ‘Inflation is under control and this decision should not impact it. The key issue for inflation is the sinuous negotiations on trade, which are a key issue for the economic outlook,’ he said.

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