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'Suck It Up and Deal With It': Fed's Fisher Warns Next Rate Hike Will Cause Correction

'Suck It Up and Deal With It': Fed's Fisher Warns Next Rate Hike Will Cause Correction

By    |   Thursday, 28 April 2016 07:35 AM


The central bank's next interest rate hike will surely cause market pain, but the Federal Reserve should just get it over with as soon as possible, former Dallas Fed President Richard Fisher said Wednesday.

"I would be prepared when they move — and I hope they move some time in June — there'll be a settling in of the market place. There will be a correction. Suck it up. Deal with it. That's reality," he told CNBC.

Fisher said the Fed has been unwilling to tighten monetary policy because it fears the potential resulting market volatility and economic weakness.

"The Fed has the markets on Ritalin, trying to keep the mood very smooth, keep volatility down as much as possible. As soon as they hint that they might remove that, then they create the problems that they're afraid of," he said.

The real economy is doing much better since the Fed's last meeting in March, Fisher said, noting that Argentina has returned to international bond markets, Chinese data looks better and demand for British bonds is strong.

"These are very robust markets. I would take advantage of that right now," he said.

The Fed kept a key interest rate unchanged Wednesday against the backdrop of a slowdown in U.S. and global growth and provided no hint of when its next rate hike may occur, the AP reported.

In a statement after its latest policy meeting, the Fed noted that the United States is enjoying solid job gains but also that "economic activity appears to have slowed."

The Fed said that such key areas as consumer spending, business investment and exports have weakened in recent months. At the same time, it expressed less alarm about global economic conditions than it had after its previous meeting in March.

In March, the Fed had cautioned that global developments "pose risks." In Wednesday's statement, the Fed no longer mentioned such risks, though it said it would "closely monitor" global economic and financial developments.

The Fed repeated that it expects inflation to move toward its 2 percent target from persistently low levels as temporary factors, like much lower energy prices, fade.

"The softness in U.S. economic data to start 2016 gave the Fed plenty of cover to hold off on further rate hikes now, and they held their cards close to the vest regarding upcoming meetings," Greg McBride, chief financial analyst at Bankrate, told the AP.

Newsmax Finance Insider Joel L. Naroff, president and chief economist of Naroff Economic Advisors Inc., noted that the central bank didn't go into detail about the "risks" it fears.

"There was also no statement that the risks to the forecast were equally balanced.  I guess they just didn’t want to say that what the risks were, and that failure to discuss where the economy might likely go is another indication that the members are uncertain where the economy might go.  And uncertainty about how strong the economy might be going forward doesn’t breed rate hikes," he explained.

"Today’s statement was probably a little more dovish than most people expected.  Chair Yellen has been yelling that she was willing to wait longer than others before raising rates and if anyone doubted it, it is now clear that she has the biggest voice in the room.  There was only one dissent and that too was a bit of a surprise.  She is doing a good job in herding the cats on the Committee," he said.

"We still have two more jobs reports and a slew of other labor market, inflation and economic data coming out before the next meeting on June 16-17.  But those reports, as well as data from Europe and Asia, will have to be really strong for the Fed to consider raising rates at that meeting," he said.

"The opportunity after June would be July 26, 27.  I actually believe that is a possibility despite the fact there is no press conference afterward.  Chair Yellen has made it clear that all meetings are live meetings, whether or not there is a press conference scheduled.  I suspect she will take the first chance to prove that point.  July could be it, but we need a whole stream of solid economic and inflation numbers to make that happen."

(Newsmax wire services contributed to this report).

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The central bank's next interest rate hike will surely cause market pain, but the Federal Reserve should get it over with, former Dallas Fed President Richard Fisher told CNBC.
fed, rate hike, correction, fisher
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2016-35-28
Thursday, 28 April 2016 07:35 AM
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