US Fed Rate Hikes May Peak Sooner Than Expected

RBC BlueBay Asset Management is forecasting that the US Federal Reserve may not raise interest rates as high as market expectations over the next year. Mark Dowding, chief investment officer for fixed income at RBC BlueBay, believes 'less, rather than more' price hikes may be warranted in the coming 12 months.

This forecast contrasts sharply with market bets for another rate increase in the coming quarter and at least three additional hikes by this time in 2027. Dowding cited lower inflation trends as a key factor, expecting US inflation to ease towards 3% and then stabilise in the high-2% range.

The asset manager expects US economic activity to remain underpinned by strong investment in artificial intelligence infrastructure, even as higher interest rates weigh on other parts of the economy. Dowding also noted that the prospect of peaking interest rates was creating opportunities in fixed-income markets, with RBC BlueBay becoming increasingly constructive on intermediate-dated government bonds.