A $70 Billion Investor Prepares for Fed Rate-Hike Risk in 2024

Australia’s QIC Ltd. expects the Federal Reserve to keep interest rates elevated through the year — or even raise them further — as the US economy powers ahead, a contrarian call that’s increasingly gaining traction.

After dialing back duration in its debt portfolio to neutral in the midst of a frenetic bond rally late last year, Brett Solomons, a senior portfolio manager at the A$106 billion ($70.2 billion) fund, is opting to keep his powder dry to stay nimble amid the various economic scenarios that may unfold. The Fed can’t declare mission accomplished on inflation just yet given the continued strength of the US labor market, he said in an interview earlier this week.

“If the labor market remains firm, nominal wage growth remains elevated and inflation remains above target, it will challenge the Fed’s ability to cut rates,” said Solomons, who’s part of QIC’s Liquid Markets Group, which oversees $15.8 billion in cash and fixed income assets. “That’s now a potential pathway we need to consider.”

His warning runs counter to the jubilation across global markets that the era of restrictive US monetary policy is in the rear-view mirror. Powell bolstered that sentiment Thursday when he said the Fed was “not far” from the confidence needed to cut rates. Even with a slight pullback in market expectations this year, swaps indicate investors are betting on at least three quarter-point cuts by the Fed in 2024.

QIC is backed by the Queensland government and manages money from the state and other public and private clients.