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Rate hikes: Is the cycle over?

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Insights and Market Perspectives

Rate hikes: Is the cycle over?

Author: Andy Kochar

March 14, 2019

The U.S. Federal Reserve is now on hold after its “long way to go” comment in the fall spooked markets into thinking a number of rates hikes were still required to get back to the central bank’s neutral target. But in today’s climate of weakening economic data, it’s become highly debatable whether that means the current tightening cycle is over or just on pause.  

While the Fed’s dot path of future rate hikes has been pared back in recent weeks, it still calls for two increases this year. Financial markets, on the other hand, now believe the Fed will remain on hold throughout 2019 and even predict a possible rate cut in 2020, according to Bloomberg data.   

In other words, something has to give – either a sizable downward revision from the Fed is necessary or the market will need to rein in its more pessimistic predictions. So, who’s right?

History may provide some guidance on this front. Based on data going back 100 years, the last Fed hike of a tightening cycle is followed by a rate cut only eight months later, on average, with most instances occurring between three to six months after the final hike.

Last hikes, first cuts

Source: Ned Davis Research, February 2019

With the most recent hike taking place in December 2018, that would suggest a rate cut coming sometime this summer, but this seems doubtful given macroeconomic and financial conditions are still relatively strong.

And while some level of economic sputtering should be expected through the first half of 2019 – as the combined effects of the 2018 Fed hikes and the diminishing tax reform boost are absorbed in U.S. data – such periods of weak growth are nothing new and have been witnessed several times in the past decade.

As a result, the Fed may well return to hiking as its dot path implies, but one rate increase this year – not two – seems increasingly likely and only after a prolonged pause, which, according to history, would push out an eventual rate cut even further.


The commentaries contained herein are provided as a general source of information based on information available as of March 8, 2019 and should not be considered as investment advice or an offer or solicitations to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication however, accuracy cannot be guaranteed. Investors are expected to obtain professional investment advice.
The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), Highstreet Asset Management Inc. (Highstreet), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI and Highstreet are registered as portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.

About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

For further information, please visit AGF.com.

© 2023 AGF Management Limited. All rights reserved.

Written by

Andy Kochar

Andy Kochar, CFA®

Vice-President, Portfolio Manager and Head of Global Credit

AGF Investments LLC

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