State Street Global Advisors is backing a counter-call for the Federal Reserve to cut interest rates as early as June, despite a run of hot economic data that has prompted most traders to postpone bets until later in the year.
The $3.6 trillion asset manager remains confident that the central bank will start monetary easing well before the U.S. presidential election in November to avoid being seen to influence the outcome, according to Lori Heinel, Boston’s chief investment officer. The inflationary backdrop still supports this move, as policy works with a long lag and the quality of recent data has been low, she said.
“We still believe a first rate cut in June is likely,” Heinel said. “We recognize that recent data undermines that call, but the overall inflation picture supports a cut.”
State Street has held firm to its monetary easing outlook for several months amid big swings in opinion from the rest of the market. In early April, before the release of last week’s data confirming a third straight month of sticky inflation, Heinel said the company was betting on a half-point cut in June and 150 basis points of easing by end of year. He has since moderated his forecast to 100 basis points, which is still double what markets are anticipating.
Heinel’s comments came after resilient retail sales data pushed Treasury yields to new highs for the year. Markets await comments from Fed Chair Jerome Powell later on Tuesday, after the bank’s Mary Daly said there was no urgency to adjust interest rates.
“Data quality has been low, with a lot of big data revisions,” Heinel said. “The Fed’s focus on data dependence could be a challenge if taken too literally.”