Macroscope

A pause in interest rate rises, rather than cuts, might be the best investors can hope for

That there is still much uncertainty over where benchmark US rates are heading attests to the unpredictability of the financial and economic landscape

What is clear is that while rate increases set off the recent market turmoil, rate cuts would be an indication of the severity of the damage to confidence

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People stand outside an entrance to Silicon Valley Bank in Santa Clara, California, on March 10. The sustained rise in interest rates has helped drive the turmoil currently shaking markets, but a sudden shift to central banks cutting rates appears unlikely. Photo: AP

Nicholas Spiro is a partner at Lauressa Advisory, a specialist London-based real estate and macroeconomic advisory firm.

Published: 9:30pm, 30 Mar 2023

Are the world’s hard-hit consumers and businesses about to get some relief as leading central banks start to cut interest rates? As recently as the beginning of this month, posing such a question would have been regarded as wishful thinking.

On March 7 – just before the turmoil in the global banking system erupted – traders were betting the US Federal Reserve would raise rates by a further 100 basis points to a peak of just over 5.6 per cent by September, according to Bloomberg data. At the time, this seemed like a sensible wager given the persistence of high inflation and the resilience of the US labour market.

Fast forward three weeks and those bets seem a distant memory. Not only are derivative markets pricing in a high probability of the Fed keeping rates on hold at its next meeting in May, traders expect rates will be cut by at least half a percentage point by the end of this year.