US Fed’s interest rate hike likely to end in May

Mar 28, 2023, 09:13 am

AsiaToday reporter Kim Na-ri

The U.S. Federal Reserve’s rate is expected to end as early as May as the recent global banking crisis has raised awareness of the stability of the financial system.

Samsung Securities said it is effective to invest “bonds in the first half of the year and stocks in the second half”. This is a key investment keyword for this year presented at the end of last year, which has attracted market attention. Bond investment is more advantageous than stocks due to preference for safe assets, and the gentle adjustment of the U.S. economy has weighed on the possibility of a stock market recovery in the second half.

Samsung Securities Research Center maintained its existing opinion of ‘bond investment in the first half of the year and stock investment in the second half’, when AsiaToday asked Monday about the outlook of stock and bond market and investment strategy for this year. As a result, it recommended to allocate 60 percent of investment assets to bonds and 40 percent to stocks.

Samsung Securities expects instability in the global financial sector would create a favorable environment for the bond market rather than stock market. This is because the U.S. Federal Reserve is likely to freeze its key interest rate at the Federal Open Market Committee (FOMC) as early as May or end its tightening after raising it once more by 0.25 percentage points. Major overseas investment banks also suggest the final U.S. interest rate level at 5-5.25 percent per year.

Yoon Seok-mo, head of Samsung Securities’ Research Center, said, “The top of the dot chart announced at the FOMC in March remained at 5.25 percent per year, and financial stability has become one of the important policy goals following the banking crisis, the U.S. key interest rate hike is expected to end with 0.25 percent points in May.”

In fact, expectations for monetary policy pivot has been already reflected into the market and bond rates continues to decline. As of the end of the year, the three-year and 10-year treasury bond rates predicted by Samsung Securities are around 3 percent per year.

It also predicted that the credit spread, or the gap between interest rates on government bonds and corporate bonds, in the bond market will narrow. This is because uncertainties over local monetary policy have been resolved since the Bank of Korea’s monetary policy committee meeting in April and interest attraction on corporate bonds could grow due to a fall in long-term government bond rates.

“In the financial market, interest in the economic downturn caused by bank instability will be higher than inflation for the time being,” Yoon said. “However, we expect a gentle adjustment rather than a sharp slowdown in the U.S. economy, and the stock market is likely to recover in the second half.”

#US Fed #interest rate #Samsung Securities