Top U.S. asset manager Vanguard doesn’t believe the Fed will cut interest rates this year

Vanguard doesn't expect the Federal Reserve to cut interest rates this year, defying the view from Fed officials that the central bank remains on track to reduce rates three times in 2024.

The Fed on Wednesday left interest rates unchanged for the fifth consecutive time, as expected, keeping its benchmark overnight borrowing rate in a range between 5.25%-5.5%.

It also said it still expects three quarter-percentage point cuts by the end of the year.

The message fueled a market rally in both the U.S. and beyond. The three major stock market indexes in the U.S. all closed at record highs Wednesday, while in Europe, the pan-European Stoxx 600 rose to a fresh record high on Thursday morning as investors cheered the prospect of multiple rate cuts.

Traders are currently pricing in a roughly 68% chance of a first Fed rate cut in June, according to the CME FedWatch Tool.

Top U.S. asset manager Vanguard, however, isn't convinced.

Its base case is no rate cuts by the Federal Reserve in 2024, and Shaan Raithatha, senior economist at Vanguard, said this could have ramifications for central banks — and markets — around the world.

"As you all know, rate cuts have already been priced down from seven rate cuts at the start of the year to three," Raithatha told CNBC's "Squawk Box Europe" on Thursday.

"So, it depends on the reason why. … If it is because of the strong economy, especially supply-side driven growth, which is also disinflationary, then perhaps the stock market can continue that rally. But also at Vanguard, what we also believe is that the U.S. equity market is relatively overvalued at this stage."

Vanguard isn't alone in raising the possibility of zero rate cuts from the Fed this year.

Mark Okada, co-founder and CEO of Sycamore Tree