Money Manager Schlossberg: World Turmoil May Keep Fed From Raising Rates

Monday, 11 Aug 2014 08:13 AM

By Dan Weil

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The military conflict in Ukraine and the Mideast might create collateral damage, preventing the Federal Reserve from raising interest rates to more normal levels, says Boris Schlossberg, managing director of BK Asset Management.

The U.S. bombed Sunni militant positions in northern Iraq, and tensions linger in Ukraine.

"When you are looking long term, . . . the Fed is not going to really go back to normal monetary policy until and unless capital assets, equity markets are relatively stable," Schlossberg tells CNBC.

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"If we continue to have relatively decent [economic] growth, but our stock market declines precipitously, that's going to keep the Fed much longer on the sidelines," he adds.

"Risk aversion is sweeping across all the markets right now."

Schlossberg believes that the military conflicts will remain for some time, noting that he "can't imagine it's just going to be one and done. . . . And that is going to keep the pressure down on all the risk aversion flows in the market."

The central bank has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008.

Meanwhile, Jeffrey Gundlach, CEO of DoubleLine Capital, says that while the Fed has announced it will likely end its bond purchases in October, it may well resume quantitative easing by 2020.

He tells the Financial Times that he sees a wave of problems causing the move: copious high-yield debt that companies must refinance, huge budget deficits as baby-boomers drain Social Security and Medicare funds, ageing populations in China and other emerging markets and maturation of the Fed's Treasury portfolio.

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