InvestmentsOct 20 2014

Legg Mason: US rates unlikely to rise for two years

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Investment giant Legg Mason has warned investors the US is unlikely to raise its base interest rate for another two years, in spite of market expectations of a 2015 rate rise.

Speaking at the firm’s investor day in New York, the chief investment officers of Legg Mason’s various subsidiaries rejected the market consensus view on rates.

Ken Leech, chief investment officer of Western Asset, said while the US Federal Reserve had said rates will probably top 1 per cent before the end of 2015, he thinks it could be more like “18 to 24 months” before rates rise.

He said the accommodative monetary stance from the Fed since the financial crisis will be hard to unwind.

“The policy response has been necessitated by the enormity of the slack in the global system,” he said.

“This was by design and I think that as you pullback from that policy experiment, you have to be really thoughtful, because the optimistic side says the economy is strong enough to take it, but that is a question mark; and I think policymakers are going to be very, very slow to unwind and therefore, we think rates are going to be very, very slow.”

Isaac Souede, chief investment officer of Permal, echoed Mr Leech’s comments and suggested the lack of inflation will likely stay the Fed’s hand a little longer when it comes to raising rates.

“China is experiencing a secular long-term slowdown in its economy and there’s an imbalance in commodities because of supply and demand,” he said.

“At the same time, Ukraine/Russia has put a strain on Europe, which is certainly deflationary, as is the stronger dollar, so America is getting a break from an inflation standpoint.”