Reuters Insider - Fed likely to cut rates twice this year - Forrest

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20/06/2019 03:00

Click the following link to watch video: https://share.insider.thomsonreuters.com/link?entryId=1_w4li5yft&referenceId=tag:reuters.com,2019:newsml_OVAK0ATMZ_930&pageId=ReutersNews
Source: Reuters Insider

Description: The Federal Reserve held interest rates steady Wednesday, but
Bokeh Capital's Kim Forrest tells Reuters' Fred Katayama she sees two rate
cuts coming this year.
Short Link: https://tmsnrt.rs/2Kp7GeR

Video Transcript:

Wall Street inching slightly higher after the Federal Reserve decided to hold
interest rates steady Wednesday afternoon. For more on the rate decision and
the market’s reaction, we’re joined by Kim Forrest. She is Chief
Investment Officer at Bokeh Capital Partners, and she’s joining us via
Skype from Pittsburgh, Pennsylvania. Welcome, Kim. Now, the Fed removed from
its statement the word “patience” in adjusting rates, saying that it
would “act as appropriate to sustain the expansion”. So what do you
make of the market reaction? Is this good for bond and equity investors?

Well, I don’t know that it’s all that great for bond investing
because it looks like interest rates are dropping even as we speak. But I do
think it’s okay for longer term investors who like to pick up bargains
when they can and, more importantly, investors that want to know that the
multiple at which they’re buying their stocks is more or less at an okay
level. And I think that we have that with today’s change in language.

So what do you make of the market’s reaction so far? It’s been
rather tepid. Did you expect a more positive reaction given that they seem to
signal that hey, they could cut rates?

Part of me thinks, why do we need them to cut rates, because the bonds complex
has already traded off. It certainly looks a whole lot different than it had
earlier this year with the 10-year closer to 3% than it is now. And so part of
me thinks that that one little word and the tepid reaction is that now
we’re expecting this change, this lower interest rate environment to take
effect in the next month. That’s when the next meeting is. And
that’s probably why things are muted because this was more or less in
line with what investors had expected. It was a no-action sort of meeting. But
coming out of that meeting, we hear that they are thinking about lowering
rates.

Now, Fed Chair Powell currently giving us a press conference and he just said
that many on his committee, many members, see a stronger case for rate cuts.
How many rate cuts do you foresee this year, and how soon will we get them?

Well, I think we’re going to get one in the next short while, which would
be next month. And perhaps one more. And you could say, why is this happening?
Well, the Fed has a mandate – full employment and 2% inflation, or so it
says. So inflation has been soft this year and employment has been full. So
they’re looking at this, looking at the inflation saying well the demand
for goods and services isn’t driving the prices up, in fact it’s
softening. So maybe that means the economy is softening. So the way they can
turn that around is by lowering rates to encourage borrowing and, thus, push
the economy forward to increase inflation rate. And I think they have a pretty
good handle on what’s happening in the economy and they are thinking that
a little bit of a rate decrease might help turn things around.

Alright. Kim, we’re just about 1% off the record highs on the S&P 500.
Are you tilting bullish or bearish as a result of this Fed decision today in
the statement?

Well, because I’m an equity investor, I’m pretty much always bullish
on that side of the line. It’s just how I’m programmed. But I
continue to like stocks at this point. Probably the biggest issue with the Fed
raising over the last couple of years, or that they tried to raise the
interest rates, is that that might have pushed the multiple down that
investors are willing to pay. There’s an inverse relationship to raising
rates and a lowered multiple that investors should pay. Now that we’re
back on not lowering or at least leaving rates where they are, it says that
the multiple you’re willing to pay for stocks is pretty much going to
either stay where it now or the multiple might expand. So that might give us
room for a higher market, so I’m bullish.

And for higher market, what stocks would you bet on at this point, or sectors?

Well, even though I’m a bull I’d like to buy things that are
bargain. And I’m looking at semiconductors that hold space that’s
been pushed lower because of the trade war. I just can’t see a future in
where we are using and buying fewer and fewer semiconductors. So I’m a
bull for that market. And I would buy pretty close to now because they’re
unloved right now but I know that that market is likely to turn around.

Okay, bottom-fishing in chips then. Thanks a lot, Kim, for joining us with
your thoughts and your analysis.

Thank you.

Our thanks to Kim Forrest of Bokeh Capital Partners coming to us via Skype
from Pittsburgh, Pennsylvania. I’m Fred Katayama, and this is Reuters