With that in mind, he is reluctant to make major asset allocation calls right now, saying investors need to be "circumspect" about the level of uncertainty in markets.
One of the reasons economies have performed better than expected in recent months is that while the quantity of money in the economy has shrunk, the velocity of money, which is the other side of the MV=PT equation that underlines modern economic theory, has continued to expand.
Conventional theory implies that if interest rates rise, then the velocity of money should shrink because higher rates of interest reward the holding of cash by individuals and banks.
Andrew says we are probably now at the tipping point where the velocity of money will start to shrink, presaging the downturn that is to come.
Investment implications
Whitney Watson, global co-chief investment officer for fixed income and liquidity at Goldman Sachs Asset Management, says the US economy is slowing, but proving to be “resilient” so far.
With this in mind, she believes markets may be wrong to be pricing in a cut in rates for later this year.
Her view is that the potential for economic uncertainty justifies owning bonds with a high credit rating as those are likely to be best able to cope with higher volatility.
Chris Iggo, chief investment officer for Core at Axa Investment Managers, says that if the Federal Reserve really have paused rate rises then one of the asset classes which looks attractive in consequence is corporate bonds.
He feels they spread on these assets, that is, the yield offered above that of government bonds is presently attractive.
If rates rise again, then the likelihood is that government bond yields would rise, reducing the spread, while higher interest rates would also be expected to slow down the level of economic activity, potentially making it more difficult for companies to pay the investors who own their bonds.
But if rate rises are paused, that may also be seen to signify that a recession is near, and drive up the price of the government bonds, which drives the yields on those assets downwards, and potentially preserves the spread over corporate bonds.
M&G's Andrew adds: "If US rate rises do stop now, then that will be good for tech shares.
"Markets in recent months have been in a tug-of-war between buying bank stocks, if they thought rates would rise, and and buying tech stocks if they thought rates would not rise."
david.thorpe@ft.com
