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You're listening to Strictly Business
Podcast with Lindsay Williams.

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The US Federal Reserve has cut interest
rates by 25 basis points, a quarter of a

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percent.

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With me now, Philip Saunders, Director,
Investment Institute at 91 in London.

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It was widely expected, Philip, and it's
been a gratifyingly sort of benign

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reaction for most asset classes.

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Yes, absolutely right, Lindsay.

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It's very, very well telegraphed.

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You know, there was some debate about
whether or not they do 50.

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That was, you know, basically there was no
real justification for that.

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So doing 25 basis points was pretty much
what markets expected.

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And so there's been relatively little
reaction to that.

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And they signaled that they're going to
potentially cut another two times, take

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rates down

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75 basis points in total, probably by the
end of the year or January.

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So it's not really...

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You know, that newsworthy, what is
newsworthy, of course, is that if you look

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at the forecasts,

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the famous dot plots, they're all over the
place.

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So, you know, it was a unanimous verdict,
apparently, 11 to 1, the one being Stephen

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Mirren,

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who's recently, he's Trump's appointee.

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He was the Trump plant, wasn't he?

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Interestingly, he was the only dissenter.

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Why was that before you go on to the
forecast being all over the place?

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he's Right at the dovish end of
expectations,

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he believes that rates should be lower.

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And if you look at his dot plots,
basically they're the lowest of the entire

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group.

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And he believes that the impact of tariffs
on inflation, which has been running at,

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you know,

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a sort of higher than comfortable level
for some time now, you know,

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it's running at around about core
inflation running around about 3% in the

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US.

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So it's pretty unusual for the Fed to be
cutting rates in those circumstances.

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He believes that inflation is due to
continue to fall, obviously,

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and that he feels that the Fed's policy
has been lagging that and the Fed have

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been keeping interest rates

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too high for too long.

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OK, tell us about the forecast being all
over the place.

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Was that something to do with the Trump
plant coming in or is it just a dissent

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within the existing members?

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So I think it's just there's a high degree
of uncertainty about what they should

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actually do.

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And to be fair, it's, you know, we're
still in this sort of post-COVID disrupted

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world where,

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you know, it's we're not looking at
conventional cycles.

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You know, some things appear to be late
cycle, other things appear to be early

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cycle.

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And so, you know, economists Generally,
there's not a particularly high degree of

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agreement at the moment.

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And that, in a way, is reflected in the
individual members'

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forecasts for both growth and inflation
and interest rates, which, of course, they

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publish.

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If there's a bit of confusion amongst the
Fed members, the FOMC members, Philip,

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does it sort of reflect what's happening
in the U.S.

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economy?

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In other words, a very sluggish jobs
market, but quite feisty inflation.

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given the economic circumstances.

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Does that reflect in a broader opinion
outside of the Fed?

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Yeah, very much so.

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And I think we've got these two particular
schools of thought, what I call the

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recessionists,

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who believe that we're on the cusp of a
recession and that actually the Fed should

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be cutting much more

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aggressively at the moment.

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And this is a result, obviously, of
tariffs and everything else.

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And then you've got the other school of
thought.

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which is sort of the polar opposite of
that, that effectively that the

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unemployment stats or the employment stats
are a

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lagging indicator.

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And actually, if anything, things are
turning around and you're beginning to see

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manufacturing,

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which has been recession effectively for
the last four years, beginning to improve.

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Consumer spending is holding up and the
labour market is sort of, you know, it's

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obviously a lot weaker,

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but the unemployment rate isn't sort of
spiking up.

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So they're sort of saying that...

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Equity markets are right to be bulled up,
whereas the former group are saying,

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right, it's crazy.

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Equity market participants have got this
completely wrong.

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And there's a significant risk of a
drawdown.

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No such problem, of course, at the Bank of
England, who are going to be announcing

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their decision a few hours after we finish
this

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podcast.

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Philip, inflation rate in the United
Kingdom, I think, is 3.8 percent.

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Growth is virtually non-existent.

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What do you think is going to happen?

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Will they follow the Fed?

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Not necessarily.

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I think the Bank of England is an
extremely difficult

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position and inflation is really not at a
level that would particularly justify, you

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know,

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cut in rates at this particular point in
time.

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And this really is sort of largely because
inflation has been pushed up by government

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policy.

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And, you know, we've come from basically
being below the European average over the

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last couple of

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years to being well above it

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simply because of basically policy shifts
that have tended to actually push

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inflation up.

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at this sort of sensitive time.

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So the Bank of England have got a very
difficult, and the Fed had a difficult

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decision.

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Bank of England had probably an even more
difficult decision because, you know,

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inflation,

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at least you can make the arguments in the
US that inflation is actually coming down.

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You know, there are a lot of measures that
are actually coming down.

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Obviously, tariffs has pushed in the other
direction.

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The Fed is deeming it to be transitory,
whereas in the UK,

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what's been driving inflation is a bunch
of different things.

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So the inflation rate is too high in the
UK, which means that it would probably be

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unwise for the Bank of England to actually

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reduce rates at this point.

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What does this mean for the 91 strategy,
given what happened last night in the

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United States?

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Steady as she goes?

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Yeah, pretty much.

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I mean, I think that, you know, we
obviously are a broad church,

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so people have different views across the
investment team.

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But I think, you know, in terms of
portfolio positioning on the multi-asset

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side at any rate,

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We're in the sort of improving economic
environment driven by, you know,

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reducing interest rates internationally,
weaker dollar, which has obviously helped

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emerging markets significantly.

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And we think that growth surprises heading
into next year are probably going to be on

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the side of strength, not weakness,

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because of this supportive policy
backdrop.

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Philip, thank you very much for your time.

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Philip Saunders is director of Investment
Institute at 91 in London.

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The views and opinions expressed in these
podcasts are those of Lindsay Williams and

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various contributors and do not reflect
the policy,

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position or opinion of any other agency,
organisation,

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employer or company associated with
StrictlyBusinessPodcast.com.

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Assumptions made on the analyses are not
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entity other than the speaker or the
author.

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And since we are critically thinking human
beings, these views are always subject to

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change, revision, and revision.

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and rethinking at any time.

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Please do not hold us to them in
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