Outgoing Future Fund chair Costello thinks markets have rallied too hard on rate cuts that might not happen
Peter Costello's final media call at the Future Fund was more a parting message to investors than a farewell.
In his final public appearance as Future Fund chair, Peter Costello has dumped cold water on over-exuberant investors who expect rate cuts to come thick and fast this year. And he’s warned that instability in the world’s biggest economy, the United States, remains a significant concern for asset allocators.
Costello, who was speaking via teleconference for the Future Fund portfolio update on Tuesday morning, said the market rally of the last few months which has lifted sharemarkets in the US and Australia to near record highs was based largely on an assumption that inflation had peaked and rate cuts would shortly follow. It’s an assumption he is uncomfortable with making.
“I think it’s far too early to say rate cuts are in the bag in 2024,” Costello said.
“We’ve still got a CPI which is 4% to 5% [in Australia]. The Reserve Bank is still saying it doesn’t expect to be back in the band until 2025. So it’s not forecasting that it can take the pressure off rates for quite a while yet,” he said.
