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Fed rate cut 'not impossible,' Morgan Stanley fund manager says
[SYDNEY] There is a chance the Federal Reserve's next interest-rate move could be a cut, according to Morgan Stanley Investment Management.
While the US central bank's next rate shift is likely to be up, it's "not impossible" it could reduce its benchmark from an already record low zero-to-0.25 per cent range, Michael Kushma, the Morgan Stanley unit's chief investment officer for fixed income in New York, said.
Other global monetary authorities including the European Central Bank have already driven their benchmarks below zero.
While the Fed last week opened the door to a rate increase as soon as June, Chair Janet Yellen and her colleagues cut their outlook for advances as weaker-than-estimated economic data collided with a surging dollar that's stifling exports. Futures data imply a 65 per cent chance that US rates will be higher by the end of 2015.
"Could we actually see a rate cut before a rate hike in the US? It's not impossible," Mr Kushma, who oversees almost US$70 billion, said at an event in Sydney on Thursday.
"The reason why I say that is that just look at the trends around the world. It doesn't look terribly good for countries to raise rates given what's happening, especially if the exchange rate is having a negative feedback loop on your economy."
He said the actions of the ECB, which currently has a deposit rate of minus 0.2 per cent, have made clear modestly negative interest rates aren't disastrous for either the economy or the financial system.
Mr Kushma still sees Fed rate increases as the most probable outcome, although the exact timing of such a move is "completely up in the air right now."
He reckons the US dollar will increase in value and that while "there are no bargains in bonds," they're not "too far away from fair value."