U.S. Markets

Fed will make 'insurance' rate cut as early as next week: Vanguard

(Reuters) - Vanguard now sees the chance of a U.S. recession in the next 12-18 months at 40%, up from 30%, and believes the Federal Reserve will implement an “insurance” interest rate cut as early as next week, the firm’s global chief economist Joe Davis said.

After a rate cut at the Fed’s June 18-19 meeting, Vanguard believes there will be “room for one more rate cut for the remainder of the year,” the company said in a client report. Vanguard, with over $5.4 trillion in assets under management, is one of the largest asset managers in the world.

Investors believe the chances of a Fed rate cut this year have dramatically increased in the last month, as President Donald Trump’s trade policies heightened fears that the U.S. economy will sink into a recession.

Davis said: “In our view, the hand the Federal Reserve has been dealt - the current economic environment as defined by inflation, labor markets, growth, financial markets, and international conditions - and the probable outcomes it implies for the economy suggest that rate cuts in 2019 will be the most prudent response.”

Reporting by Jennifer Ablan; Editing by Chizu Nomiyama and Paul Simao