KKR forecasts two Fed rate hikes — MarketWatch
Investment firm KKR expects the U.S. Federal Reserve to raise interest rates at its meetings in December and March next year, and then keep them at 4.375% through 2029. The company’s forecast is more hawkish than a number of assessments on Wall Street, MarketWatch reports.
Assessment of the U.S. economy
Henry McVey, chief investment officer of KKR’s balance sheet unit, believes that further monetary tightening is increasingly driven by GDP growth and elevated core inflation. The core inflation measure excludes food and energy prices.
According to McVey’s assessment, nominal economic growth is supported by significant capital expenditures, higher productivity and increased geopolitical investment. He also noted that members of the Federal Open Market Committee are showing the lowest level of concern about GDP growth since the Fed began publishing this forecast in 2011.
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Forecasts for bonds and assets
KKR raised its forecast for the yield on 10-year U.S. Treasury bonds to 5.1% at the end of 2026, compared with its previous estimate of 5%. The forecast for December 2027 rose to 4.9% from 4.7%. On Friday morning, the yield on 10-year securities stood at 4.96%.
McVey said that investors in long-term bonds will continue to demand a higher term premium due to strong nominal GDP growth, large budget deficits and the Fed’s willingness to allow inflation to run somewhat above 2%.
Against this backdrop, KKR favors assets tied to nominal GDP growth, including infrastructure, asset-backed financing, opportunistic lending and buyouts of companies with potential for operational improvement. The company also described productivity improvement and worker retraining, energy and grid infrastructure, and a shift from capital-intensive to less capital-intensive models as promising areas.
