Sam Dickie: Fisher Funds expert on the US Federal Reserve cutting interest rates

The US Federal Reserve surprised economists with its first interest rate cut in four years.

Rates have gone down by 0.5 percent to about 4.8 percent - a significant shift after two years of high rates designed to tame inflation.

Fisher Funds expert Sam Dickie says the markets responded well to this move after pricing in potential cuts. 

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Episode Transcript

Speaker 1 (00:00):
The Fed Reserve surprised more than a few economists this
morning didn't that when it made a decisive cut to
the interest rates in the US. The zero point five
percent cut was the first cut since the depths of COVID.
After the meeting, FED Chair Jerome Powell was asked whether
the bigger cut was a sign that the US economy
was actually doing worse than expected.

Speaker 2 (00:17):
We can go quicker if that's appropriate. We can go
slower if that's appropriate. We can pause if that's appropriate.
We don't think we're behind. We do not think were
We think this is timely. But I think you can
take this as a sign of our commitment not to
get behind.

Speaker 1 (00:30):
Sam Dicky from Fisher Funds is with us. Now, Hey, Sam, Hey,
How surprised was the market by this?

Speaker 3 (00:37):
There was an excellent economists answer by Jerome Power. Whether
that's we can go faster, we can go slower, or
we can do nothing. Yes, here we go a long
away to cut, and you're right. Fifty basis points or
half a percent of a decent start. But it was
quite well anticipated by the market. So as at yesterday
the market was pricing into interest rate curves about forty

(00:58):
two basis points or point four two of a percent.
So said another way, the market was pricing as yesterday
about an eighty five percent chance of this half a
percent cut.

Speaker 1 (01:08):
Why has it taken them so long to finally get
to this point?

Speaker 3 (01:13):
Yes, it has felt like a lifetime, especially given the
magnitude of and the aggressiveness of the hiking cycle we
saw before this, So sort of five hundred and twenty
five basis points the most aggressive rate hiking cycle in
forty years. And remember to your point here that the
FED paused its rate hiking cycle way back in July
twenty twenty three. But remember hither you and I have

(01:34):
talked about the nineteen seventies, which has burnt into every
central banker's brain. In fact, it's their worst nightmare. Recall
the FED that then declared victory on inflation early started
cutting rates prematurely, and flashing took off again. The FED
had to crush it with a dreadfully aggressive rate hike cycle,
a hiking interest rates at twenty percent, So any central

(01:56):
banker is reluctant to cut now until they have certain
inflation is tamed, and the fear is now fairly certain
of that. Given inflation has fallen all the way from
sort of nine percent and change to about two point
five percent, which is fairly close to their two percent target.

Speaker 1 (02:11):
And so what happened to the bond in stock markets
when this was happening, just like immediately before and afterwards.

Speaker 3 (02:17):
Yeah, in the US market hours, so that closes about
eight eight thirty our time, was a bit of a
damp squib. Really, So if we look at short dated bonds,
which are the best way I have to look at
because they're most influenced by these sort of federal Reserve
rate moves to So the US two year government bond,
for example, it closed basically flat on where it was

(02:37):
before the announcement. In the US equity market actually closed
slightly lower, so you can see the rate cut was
pretty well priced, pretty well anticipated by the market. However,
since the US closed, Asian and Australasian equity markets are
sort of cheering a bit more and they're sort of
up one to two percent since.

Speaker 1 (02:54):
Then, Sam, do you have any opinion on whether this
is going to impact what our Reserve Bank governor does?

Speaker 3 (03:02):
I think, Look, I think Adrian's and as ough Man,
but I do think that when the most important central
bank in the world is cutting rates at double time.
Usually we move in twenty five basis point moves, albeit
the last few years has been abnormal, and that we're
moving in fifty basis point moves. Yeah, I think it
does give you a It puts some wind at you're
back and gives you some confidence to cut rates more aggressively.

Speaker 1 (03:25):
Okay, what do investors need to think about when they
considering all of the stuff.

Speaker 3 (03:30):
We're on a journey. Now. It's good. We've all been
waiting for this for a long time. It was a
torrid rate hike cycle that drove you know, the worst
bond market return in one hundred and fifty years and
twenty twenty two, and bond investors had a fairly tempered
year last year as well. So if this rate cutting
cycle continues to pace, the stronger returns for bond investors

(03:50):
that we've started to see this year should continue. So
that's that's good news. And remember, as a simple equity guy,
I always remind myself interest rates go down, bond prices
go up. So that's good stuff from a consumer and
equity market investors perspective. The interest rate relief is appreciated,
but we need to be careful what we wish for
we here, So if the FED really does start putting
the accelerated down and cutting faster than we expect, you've

(04:13):
got to try and figure out what that means. That
means the underlying economy is growing weaker and expected, and
that's likely to hit corporate profit. So ideally we want
a gentle rate cutting cycle driven by a gently slowing
economy rather than a panic rate cutting cycle.

Speaker 1 (04:29):
Yeah, absolutely, Sam, thank you very much, as always appreciated that.
Sam Dickie Official funds at eighteen Away from seven.

Speaker 3 (04:37):
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