(Bloomberg) -- The Federal Reserve’s next rate move is going to be a cut in the second half of the year, according to Brandywine Global Investment Management.
Francis Scotland, director of global macro research at Legg Mason Inc (NYSE:LM). unit Brandywine, sees the Fed likely cutting rates in the second half of the year. He doesn’t think policy makers will move before June because they don’t want to be seen as making mistakes -- and they’ve already become more dovish as markets tanked in December and the U.S. economy showed signs of slowing.
“The yellow flags are up. There’s no question about that, and that’s why the onus is on the Federal Reserve to begin to react to this,” Scotland said in a press briefing in Hong Kong Tuesday. However, he expects both the global and U.S. economies to avoid recession and find a soft landing.
In its meeting last week, the Fed changed projections to no rate hike in 2019, and decided to slow the drawdown of the U.S. central bank’s bond holdings starting in May, then end them in September. The moves capped a pivot away from policy tightening and toward a much more dovish stance that showed policy makers are closely watching risks to their outlook. Investors have increased bets in recent weeks on the next move being a cut, according to pricing in interest rate futures contracts.
Much of the 2018 slowdown was due to “self-inflicted policy mistakes” with the Federal Reserve being too aggressive in raising rates after Jerome Powell took over, while Chinese authorities slowed the economy abruptly as it pursued deleveraging, Scotland said. He’s focused on the yield curve, narrow money growth adjusted for inflation, and the unemployment rate related to its 12-month moving average.
“As long as policy makers don’t lean into this the wrong way I don’t see why this can’t last much, much longer than is the general consensus,” Scotland said.