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Sam Dickie: Fisher Funds expert on the US Federal Reserve cutting interest rates · Best of Business

• 0:09
  Speaker 1: You're listening to a podcast from News Talks'd be follow
• 0:12
  Speaker 1: this and our wide range of podcasts now on iHeartRadio.
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  Speaker 2: The Fed Reserve surprised more than a few economists this morning,
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  Speaker 2: didn't that when it made a decisive cut to the
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  Speaker 2: interest rates in the US. The zero point five percent
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  Speaker 2: cut was the first cut since the depths of COVID.
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  Speaker 2: After the meeting, FED Chair Jerome Powell was asked whether
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  Speaker 2: the bigger cut was a sign that the US economy
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  Speaker 2: was actually doing worse than expected.
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  Speaker 3: We can go quicker if that's appropriate. We can go
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  Speaker 3: slower if that's appropriate. We can pause if that's appropriate.
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  Speaker 3: We don't think we're behind. We do not think we
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  Speaker 3: think this is timely. But I think you can take
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  Speaker 3: this as a sign of our commitment not to get behind.
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  Speaker 2: Sam Dicky from Fisher Funds is with us. Now, Hey, Sam,
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  Speaker 2: how surprise was the market by this?
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  Speaker 4: There was an excellent economist's answer by Jerome Power. Whether
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  Speaker 4: that's we can go faster, we can go slower, or
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  Speaker 4: we can do nothing. Yes, here we go a long
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  Speaker 4: away to cut and you're right. Fifty basis points or
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  Speaker 4: half a percent of a decent start. But it was
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  Speaker 4: quite well anticipated by the market. So as at yesterday,
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  Speaker 4: the market was pricing into interest rate curves about forty
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  Speaker 4: two basis points or point four to two of a percent.
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  Speaker 4: So said another way, the market was pricing as at
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  Speaker 4: yesterday about an eighty five percent chance of this half
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  Speaker 4: a percent cut.
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  Speaker 2: Why has it taken them so long to finally get
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  Speaker 2: to this point?
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  Speaker 4: Yes, it has felt like a lifetime, especially given the
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  Speaker 4: magnitude of and the aggressiveness of the hiking cycle we
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  Speaker 4: saw before this. So sort of five hundred and twenty
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  Speaker 4: five basis points the most aggressive rate hiking cycle in
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  Speaker 4: forty years. And remember to your point here that the
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  Speaker 4: FED paused its rate hiking cycle way back in July
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  Speaker 4: twenty twenty three. But remember heither you and I have
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  Speaker 4: talked about the nineteen seventies, which has burnt into every
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  Speaker 4: central banker's brain. In fact, it's their worst nightmare. Recall
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  Speaker 4: the FED back then declared victory on inflation early, started
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  Speaker 4: cutting rates prematurely, and flashing took off again. The FED
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  Speaker 4: had to crush it with a for the aggressive rate
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  Speaker 4: hike cycle of hiking interest rates to twenty percent. So
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  Speaker 4: any central banker is reluctant to cut now until they
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  Speaker 4: are certain inflation is tamed, and the FED is now
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  Speaker 4: fairly certain of that, given inflation has fallen all the
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  Speaker 4: way from sort of nine percent and change to about
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  Speaker 4: two point five percent, which is fairly close to their
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  Speaker 4: two percent target.
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  Speaker 2: And so what happened to the bond in stock markets
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  Speaker 2: when this was happening, just like immediately before and afterwards.
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  Speaker 4: Yeah, in the US market hours, so that closes about
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  Speaker 4: eight eight thirty our time, was a bit of a
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  Speaker 4: damp squib really, So if we look at short dated bonds,
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  Speaker 4: which are the best one I have to look at
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  Speaker 4: because they're most influenced by these sort of Federal Reserve
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  Speaker 4: rate moves. So the US two year government bond, for example,
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  Speaker 4: it closed basically flat on where it was before the announcement,
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  Speaker 4: and the US equity market actually closed slightly lower, So
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  Speaker 4: you can see the rate cut was pretty well priced,
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  Speaker 4: pretty well anticipated by the market. However, since the US closed,
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  Speaker 4: Asian and Australasian equity markets are hearing a bit more
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  Speaker 4: and they're sort of up one to two percent since then, Sam,
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  Speaker 4: do you have.
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  Speaker 2: Any opinion on whether this is going to impact what
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  Speaker 2: our Reserve Bank governor does?
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  Speaker 4: I think Look, I think Adrian's and as o man,
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  Speaker 4: but I do think that when the most important central
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  Speaker 4: bank in the world is cutting rates at double time,
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  Speaker 4: usually we move in twenty five basis point and moves,
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  Speaker 4: albeit the last few years has been abnormal, and that
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  Speaker 4: we're moving in fifty basis point moves. Yeah, I think
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  Speaker 4: it does give you a It puts some wind at
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  Speaker 4: you're back and gives you some confidence to cut rats
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  Speaker 4: more aggressively.
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  Speaker 2: Okay, what do investors need to think about when they
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  Speaker 2: considering all of the stuff.
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  Speaker 4: We're on the journey now, it's good. We've all been
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  Speaker 4: waiting for this for a long time. It was a
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  Speaker 4: torrid rate hike cycle that drove you know, the worst
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  Speaker 4: bond market return in one hundred and fifty years and
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  Speaker 4: twenty twenty two, and bond investors had a fairy teppered
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  Speaker 4: year last year as well. So if this rate cutting
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  Speaker 4: cycle continues to pace the stronger returns for bond investors
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  Speaker 4: that we've started to see the year should continue. So
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  Speaker 4: that's good news. And remember, as a simple equity guy,
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  Speaker 4: I always remind myself interest rates go down, bond prices
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  Speaker 4: go up. So that's good stuff from a consumer and
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  Speaker 4: equity market investors perspective. The interest rate relief is appreciated,
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  Speaker 4: but we need to be careful what we wish for here.
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  Speaker 4: So if the FED really does start putting the accelerated
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  Speaker 4: down and cutting faster than we expect, you've got to
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  Speaker 4: try and figure out what that means. That means the
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  Speaker 4: underlying economy is growing weaker and expected, and that's likely
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  Speaker 4: to help corporate profits. So ideally we want a gentle
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  Speaker 4: rate cutting cycle driven driven by a gently slowing economy,
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  Speaker 4: rather than a panic rate cutting cycle.
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  Speaker 2: Yeah, absolutely, Sam, Thank you very much, as always appreciated
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  Speaker 2: that Sam Dickey Official funds A dating Away from seven.
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