Morgan Stanley CEO Ted Pick recently highlighted the end of the "cheap money" era, marked by zero interest rates, at the 8th Future Investment Initiative (FII) Summit in Saudi Arabia. He cited the end of financial repression, zero rates, and zero inflation, forecasting higher global interest rates that will present challenges. Additionally, he noted that geopolitical risks have resurfaced, posing long-term economic challenges.
Pick emphasized that since 2022, low-interest rates and loose monetary policies have become history. The Federal Reserve had previously lowered rates to near-zero to counteract the COVID-19 pandemic's economic impact. However, in the following 18 months, the Fed raised rates by approximately 500 basis points, concluding the era of ultra-low rates.
Discussing challenges for public companies, Pick mentioned that the benefits of the pandemic and zero rates had allowed many small companies to go public without comprehensive business plans. However, the market has since experienced a low-activity period for about 18 months, which he describes as a return to a more normal rhythm.
In September, the Federal Reserve initiated a loosening cycle with a 50-basis-point rate cut, marking the first reduction since March 2020. This move has sparked debate on Wall Street about additional rate cuts within the year. JPMorgan and Fitch Ratings strategists anticipate two more rate cuts by the end of 2024, extending into 2025.
However, many Wall Street executives, including Pick, disagree, believing inflation could persist, making further rate cuts uncertain. At a recent international finance meeting, CEOs from leading financial institutions, including Morgan Stanley, were asked if they expected two more rate cuts this year; none raised their hands.
BlackRock CEO Larry Fink also expressed skepticism, predicting that the Federal Reserve will not cut rates as aggressively as the market expects due to high "embedded inflation." He suggested only one 25-basis-point rate cut might occur for the rest of the year. Fink warned about persistent global inflation and policies that could exacerbate it, such as immigration and onshoring production, emphasizing the historically consumer-driven nature of the economy.
