Norway Wealth Fund Head Says Rate Cut Pace to Disappoint Market

Francine Lacqua and Kari Lundgren, Bloomberg News

Nicolai Tangen Photographer: Fredrik Solstad/Bloomberg , Bloomberg

(Bloomberg) -- Persistent inflation is likely to prevent a rapid series of interest-rate cuts by global central banks, according to Nicolai Tangen, the chief of Norway’s $1.6 trillion sovereign wealth fund.

“I suspect that we won’t see the type of rate cuts that many are expecting,” Tangen, 57, said in an interview with Bloomberg TV Thursday. “There’s more near-shoring. We have recently seen some more pressure on raw materials. Wage increases are quite high.”

The European Central Bank on Thursday kept rates on hold for a fifth meeting, while sending its clearest signal yet that cooling inflation will soon allow it to commence cuts. The central bank led by President Christine Lagarde is zeroing in on a cut in June, with a debate raging on what happens after that, as inflation has retreated to within sight of the ECB’s 2% target.

Read More: ECB Holds Interest Rates and Firms Path to First Cut in June

Other central banks are less certain, with another overshoot in US consumer prices for March fueling bets that the Federal Reserve will have to wait longer to start loosening monetary policy.

Market expectations for cuts have also been upended time and again with changes in inflation outcomes as traders place bets on exactly when policymakers will begin to ease constriction on the economies.

“Markets have been relatively resilient on the back of changed interest-rate expectations,” Tangen said. “It’s been a bit surprising.”

The Norwegian executive has repeatedly warned that inflation is likely to dog global economies, as well as weigh on returns at the world’s biggest single owner of equities.

Established in the 1990s to invest Norway’s oil riches, the fund — officially known as Norges Bank Investment Management — was able to return a profit last year, but missed its benchmark for the first time since 2018. It owns stakes in about 1,800 US companies, accounting for 34% of all holdings and a value of 5.4 trillion kroner ($500 billion).

“The US economy is pretty good relative to Europe,” Tangen said. “The backdrop to doing business in the US is so much better than doing business in Europe. A lot of things are going right in America.”

--With assistance from Ben Priechenfried, Chris Miller and Federica Romaniello.