How to avoid ‘too much’ debt: the latest
- by admin
Investors in the bond and property markets are becoming increasingly worried about the risk of debt levels exceeding their ability to service, according to new research.
The research, published by financial advisers CBRE and the Bank of America Merrill Lynch, finds that there is “a real risk that borrowers could reach a debt limit” as early as March 1, 2018.
The latest research comes just months after the Federal Reserve raised interest rates again to try to help borrowers avoid the “crisis”.
In a report published earlier this month, the Fed said it would keep the central bank’s benchmark overnight lending rate unchanged at zero to help avoid the crisis.
It also cut the number of new monthly bond purchases it makes from $1.4tn to $1bn.
However, the new research says there is no guarantee that the central banks “fearless, aggressive policy actions” would avoid the potential crisis.
In the same report, the US Federal Reserve also reiterated its policy of keeping the central rate near zero for three more months.
It also said that if interest rates stay at zero, it would likely raise rates for two years, in the same way that it did in February 2017.
In its report, CBRE said that the Federal Funds rate will be the “target interest rate” for the US economy by March 31, 2018, and that it is “not unreasonable” to expect that the Fed would increase its benchmark overnight borrowing rate to the “fiscal accommodation” level of 3% at that time.
But it said that, despite this, it is not “certain that the US will be able to meet the fiscal accommodation”.
“There is little likelihood of a sharp fall in the federal funds rate beyond March 31.
We believe that the pace of rate increases will depend on the level of economic activity, consumer spending and household debt,” it said.
The CBRE report said the US could fall into a “very painful recession”, as early inflation could reach 10% or higher.
“The Fed will likely try to stay above target with a gradual pace of increasing the benchmark overnight rate, but the risks of a deep recession persist,” the firm said.
“This scenario would create a situation of considerable economic pain and strain.”
In the UK, the Office for Budget Responsibility (OBR) said it is likely the country will need to raise interest rates from today to keep up with inflation and economic growth, and the Office of National Statistics (ONS) expects to increase its estimate for consumer price inflation.
The US is already in a recession, and there is a chance the Fed could increase interest rates further as early March.
But the risks from inflation are still much lower, and it is expected that the rate hikes will be small.
In October, the Federal Open Market Committee (FOMC) held its first meeting of the year, with the intention of raising the federal government’s key interest rate, which is the key to the US’s economic recovery.
However, there was no unanimous decision from the FOMC, and President Donald Trump’s former campaign adviser, Roger Stone, said on Twitter that the FOC was not meeting.
“FOMc meeting is NOT on,” Stone wrote.
“It’s just a political show.”
On Monday, the FED’s governor, Jerome Powell, told a conference of financial analysts that the bank had no intention of hiking interest rates any time soon.
“As we continue to work through the details of our rate increases, we are confident that we will be ready to make the appropriate adjustments in our key rate policy,” Powell said.
On Tuesday, the OBR released its latest inflation report, which shows that consumer prices rose by 0.2% in March and 0.1% in February.
Inflation for the first nine months of the new year was 2.7% – an increase of 0.5 percentage points from the previous year.
Investors in the bond and property markets are becoming increasingly worried about the risk of debt levels exceeding their ability…