(Bloomberg) -- Australia’s second-largest pension fund, Australian Retirement Trust, is betting the Federal Reserve can support the conditions for a softening of US economic activity. 

“We’re still confident the Fed has things under control, but we’re also really cautious about both the downside risk of a hard landing” as well as a stagflation scenario, Andrew Fisher, head of investment strategy, said in a Bloomberg TV interview in Sydney. 

As Fed officials this week dialed back their forecasts and penciled in just one interest-rate reduction this year, market pricing is indicating a more pronounced move will be needed. Fisher says ART, which manages more than A$280 billion ($186 billion), favors US Treasuries and UK gilts over Japanese government bonds. 

“This isn’t necessarily approaching the end of an economic cycle,” he said. “Higher for longer isn’t as concerning to us, what would be concerning is low growth and a recession in that higher for longer scenario. That’s what we’re really looking out for.”

Last month the fund said it planned to boost its private credit allocation as it seeks more opportunities in Europe and North America. The nation’s fast-growing A$3.9 trillion pension pool is looking for investment avenues at home and abroad as it draws in more than A$2 billion every week.

--With assistance from Andy Clarke.

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