In a , Thiago Ferreira, economist at Vanguard, states that we are living any central banker’s biggest nightmare: reducing the space to reduce interest rates.
As long as the conflict in Iran continues, oil prices will remain high. As a result, there is a greater and more prolonged shock for the global economy, explains Ferreira. Given this, how will the Fed, Bacen and the world’s Central Banks react?
In Ferreira’s analysis, everything is a trade-off. “And the oil shock worsens the BCs’ trade-off”, he says. In the case of the Fed, for example: inflation was persistent while the job market showed signs of cooling very quickly. Now, inflation may be higher while growth is lower. This puts ‘neutral interest’, the one that neither stimulates nor retracts the economy, at a higher level. As a result, Central Banks have less room to reduce interest rates – and in a smaller window to try to maneuver inflation.
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The conflict in the Middle East, however, is not the only factor that is moving monetary policy around the world. In a scenario of accelerated transformations, Artificial Intelligence emerges not only as a technological promise, but as a driving force that is already reshaping the global economy and markets. The statements were made on a panel during the , in Miami, in the United States.
New phase of AI
In the most recent stage of development, AI paves the way for a scenario of high growth and productivity, albeit accompanied by higher interest rates. This new environment moves away from the pre-Covid scenario, when AI drove demand for credit due to its capital-intensive nature, especially in infrastructure such as data centers.
“There is a productivity shock for those with a high automation component, which reduces the demand for employment, which, in turn, reduces costs and causes companies to readjust prices less. On the other hand, this type of technology is very capital intensive, which can impact the demand for credit”, says Ferreira.
Investment Strategies
Given this scenario, Ferreira suggests a reassessment of investment strategies in different asset classes. With the expectation of higher interest rates, fixed income becomes more attractive, offering more competitive returns.
On the other hand, the US stock market is considered overvalued, with levels comparable to the “dot-com” bubble, driven by overly optimistic profit expectations, which, for Ferreira, creates a significant risk of correction.
“Value” ou “Momentum”
According to Ferreira, historically, in emerging technological cycles, “Momentum” strategies (high-growth stocks) stand out. However, as technology spreads throughout the economy, “Value” stocks (companies with solid fundamentals and lower prices) tend to perform better, indicating an opportunity for transition.
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Furthermore, the international market is seen as more attractive than the American one, with favorable dividend yields and diversification opportunities. The dollar, in turn, appears to be at a fair price, with upside and downside risks depending on US productivity and global diversification.
The turn of 40-60?
Faced with the new scenario, Ferreira proposes an audacious assessment: inverting the traditional portfolio of 60% stocks and 40% bonds (60-40) to one 40% stocks and 60% bonds (40-60).
Within the share of stocks, the suggestion is to reduce exposure to the USA, increase allocation to international markets and prioritize “Value” stocks over “Growth” stocks. This portfolio, while more conservative, offers a similar return to the standard 60-40 but with significantly lower risk, aligning with new AI-driven economic and market realities.
