Lower rates welcome, but risks abound: Fitch

Dropping interest rates are easing financial and economic conditions and boosting investor sentiment, yet an array of risks abound, including ongoing geopolitical and market volatility risks, cautions Fitch Ratings.

In a new report, the rating agency said that easing global monetary policy — including rate cuts in the U.S., Europe and other major economies — has underpinned increased investor confidence, and a “fairly benign” global macroeconomic and credit environment.

However, amid these increasingly supportive conditions, the major risks to global credit haven’t dissipated, it noted. These include both geopolitical and political risks, the prospect of deflationary pressures in China, and capital market volatility risks.

In the short term, the most important event from a credit perspective is the looming U.S. election, and the policy implications of the composition of Congress and the White House in 2025, Fitch said.

“Trade policy, in particular, could have a material effect on the global economy should protectionist measures by the U.S. be aggressively ramped up in 2025 followed by retaliatory action by key trading partners,” it said.

Additionally, the post-election fiscal and immigration policies in the U.S. could also be significant, “especially should a combination of policies under a new government contribute to reversing disinflationary trends and cause a slowdown in the rate-cutting trajectory,” Fitch said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.