Is the Era of Low Rates Really Over?

At a recent finance CEO panel in Riyadh, Morgan Stanley's CEO, Ted Pick, declared that the days of zero interest rates and inflation are firmly behind us. Pick was referring to the notion that since the end of the Cold War, global conflicts and ideological clashes had diminished, as famously proposed by Francis Fukuyama in 1992. However, the rise in interest rates and persistent geopolitical tensions suggest a different reality. In 2022, the Federal Reserve began increasing its benchmark rate after slashing it to near zero during the Covid-19 pandemic. This shift, lifting rates by around 500 basis points over 18 months, signaled a departure from the easy monetary policies of the past. Pick acknowledged the "sugar high" of Covid and zero rates, which allowed small companies to go public with minimal planning, but now the landscape has changed. Publicly-listed companies are facing new challenges. Pick described the current environment as "more normalized, " though tougher for public companies. The Fed's recent cut of 50 basis points in September marks a turning point in its economic management and inflation outlook. Despite predictions from J. P. Morgan and Fitch Ratings of further interest rate cuts by the end of 2024 and into 2025, many Wall Street CEOs, including those from Goldman Sachs, Carlyle, Standard Chartered, and State Street, seem to disagree. At an earlier panel at the Future Investment Initiative in Saudi Arabia, none of these CEOs raised their hands when asked if they expected two more rate cuts this year.