February 7, 2019 / 8:50 PM / 8 months ago

Q&A-Slowing global economic growth to deter U.S. rate hikes -RBC's Bishop

    By Michael Connor
    NEW YORK, Feb 7 (Reuters) - U.S. central bankers are done
raising domestic interest rates amid signals from Asia and
Europe that global economic growth is sputtering, according to
RBC Wealth Management's lead fixed-income strategist.
    America's nearly 10-year domestic expansion should continue
through 2020, Craig Bishop said on Thursday in an interview in
the Reuters Global Markets Forum online chat room.
    But when a recession arrives, the Federal Reserve may
institute below-zero, or negative, interest rates like those
seen in Europe after the 2008 financial crisis, said Bishop, who
helps run RBC Wealth's $300 billion of assets.
    Here are excerpts:
    Question: What do Fed policymakers see when they look out at
the world economy?
    Answer: The two rate cuts, India and Australia, and the BOE
(Bank of England) comments this morning are sending messages the
global slowdown is real. The global slowdown scenario in our
opinion will keep the Fed sidelined indefinitely and, in effect,
cap interest rates.
    Q: Does that mean you see the Fed holding steady on rate
hikes throughout 2019 and 2020?
    A: We think the Fed is done, the tightening cycle is over.
We agree with market expectations that the next move will be a
rate cut. Likely a 2020 event.
    Q. Is the Fed, after battling the Great Recession with
massive bond purchases and rates as low as nearly zero, ready
for another recession?
    A: Nine hikes in from the zero bound, the Fed has a cushion,
but ideally they would like more. Recent comments from (Fed
Chair Jerome) Powell about maintaining an ample reserve regime
indicate the BS (balance sheet) will remain large. The recent
(San Francisco) Fed paper on negative rates is interesting and
suggest it could get more play (among policymakers) when the
next downturn occurs.
    Q: Do you expect the Fed to use negative rates?
    A: Whether we go into negative yields, and whether the Fed
has built in enough cushion for the next recession, depends on
the severity of the next recession. The reference many have here
is the Great Recession, which in our opinion won't be repeated
the next time around. A normal recession, if there is such a
thing, would, I think, be unlikely to push the Fed to adopt
negative rates.

 

 (Reporting By Michael Connor in New York; editing by Diane
Craft)
  
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