The Federal Reserve will not raise interest rates this year but when the monetary authority does tighten, it will create a buying opportunity, says legendary mutual fund manager Bill Miller, chairman of Legg Mason Capital Management.
According to Miller, the Fed is watching resource utilization, such as capacity and unemployment, inflation trends and inflation expectations, all of which are not at levels that call for higher lending rates.
“We think it unlikely the federal funds rate will be increased this year, but if it is it will not affect how we manage the portfolio,” Miller says in a Wall Street Journal blog.
“It is likely, though, that when rates are increased, the market will sell off. That will present a buying opportunity, in our opinion, as corrections due to the Fed moving from accommodative to neutral are quite different from those happening when the Fed is going from neutral to tight.”
Fed officials have said that interest rates need to stay at rock-bottom levels in order for the economy to continue to recover.
While the overall economy may be improving, unemployment rates remain high at 9.7 percent.
“It's quite possible the recovery could be well advanced before any significant reduction of unemployment materializes,” says Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, according to the Associated Press, who added that rate hikes may come before unemployment rates lower to more comfortable levels.
“It's also quite possible circumstances justifying the start of a cycle of policy tightening will develop well before the unemployment rate has found a satisfactory level.”
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