According to the latest data from CME’s “FedWatch”, the market’s expectations for the Fed’s interest rate decision in June are gradually becoming clear. The probability of keeping the interest rate unchanged is as high as 97.9%, while the probability of cutting it by 25 basis points is only 2.1%. In the outlook for interest rates in July, the probability of keeping interest rates unchanged is 75.6%, the probability of a cumulative 25 basis point rate cut is 23.9%, and the probability of a cumulative 50 basis point rate cut is 0.5%.
This expected trend of interest rates has a non-negligible impact on the adjustment of investment strategies of global family offices. In the field of private equity investment, when interest rates remain stable or show a downward trend, the financing costs of private equity funds are expected to decrease. Based on past experience, when the Federal Reserve maintains a low-interest-rate environment, the private equity industry often encounters more development opportunities. Take the Federal Reserve’s interest rate cut cycle in 2020 as an example. In the following years, private equity funds saw significant improvements in both investment scale and return performance. Family offices have increased their allocation to private equity funds and are expected to achieve higher returns under the current interest rate expectations. A stable interest rate environment also keeps the operating costs of enterprises relatively stable, which is conducive to the development of enterprises invested by private equity and further enhances the potential for investment returns.
The interest rate decision of the Federal Reserve also has a profound impact on family offices’ exploration of crypto asset investment. Although the correlation between the crypto asset market and the traditional financial market is relatively low, interest rates, as a key variable in the macroeconomy, still indirectly affect the crypto asset market. When the Federal Reserve keeps interest rates unchanged or cuts them, market liquidity increases and investors’ risk appetite improves. As a result, more funds will flow into emerging asset areas, including crypto assets. For instance, in the low-interest-rate environment of 2020-2021, the prices of cryptocurrencies such as Bitcoin rose sharply, attracting a large number of institutional investors to enter the market. Nowadays, when family offices are considering investing in crypto assets, the interest rate expectations of the Federal Reserve provide them with an important macro background support.
In terms of stock investment, although the proportion of stock investment by family offices is on a downward trend, the interest rate decision of the Federal Reserve remains crucial. If interest rates remain unchanged, stock market fluctuations may be relatively stable. For those family offices that hold a large amount of stock assets, the risk of asset value fluctuations is reduced. However, once interest rates are adjusted, especially when they are cut, it may stimulate the stock market to rise, and family offices may need to reevaluate the allocation ratio of stocks in their asset portfolios.
The Federal Reserve is highly likely to keep interest rates unchanged in June. This expectation provides an important reference for the investment decisions of global family offices under the current complex economic situation. When family offices adjust their investment strategies, increase investment in private equity and crypto assets, and optimize stock allocation, they need to closely monitor the direction of the Federal Reserve’s interest rates and the market chain reactions they trigger, in order to achieve stable asset appreciation and effective risk management.
