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Fed Officials Hint Flurry of Rate Hikes Possible

Fed Officials Hint Flurry of Rate Hikes Possible

Friday, 06 May 2016 08:33 AM Current | Bio | Archive

We have gotten some interesting statements from Federal Reserve members that came out to say (one more explicitly than the other) that beside the June meeting there was still a possible that at least 2 rate hikes remain in the cards this year.

The most remarkable of all was San Francisco Fed John Williams, former head of research to Fed Chair Janet Yellen, who said that two or three rate increases this year would be reasonable, but the central bank will (of course) continue to watch economic data.

Atlanta Fed's Dennis Lockhart said he wasn’t leaning for or against a June increase until he sees more data, adding that two interest rate increases this year are certainly possible.

Dallas Fed Robert Kaplan said a few days ago he could back a rise in U.S. interest rates as soon as June or July, if U.S. economic data firm as he expected.

St. Louis Fed's James Bullard just said the Fed could raise rates at its meeting in June if the economic data call for it, despite the fact that traders see only a slim chance of it happening.

Does this mean that these Fed members know something that we do not know? Almost certainly not.

Traditionally it’s only the Fed chair who gets advance notice on Thursday of the employment data.

Data dependent means trend dependent and so far the trend in non-farm employment numbers has remained good, and that's what (economically speaking) is important.

Of course, the market clearly likes that very first number that comes out and acts as if it is of immense importance. The first estimate is important, the revisions are even more important.

Besides, the general rise of wages on a like to like basis and limited (unfortunately) to skilled and semi-skilled labor, is also very important as these figures are pointing at a tightening in specific parts of the labor market.

As this situation looks like being set to continue, investors could do well keeping in mind we probably are bound for a situation where there will be a lack of available workers that “fit” for the specific jobs available and that will translate into a potential constraint on future non-farm payroll figures.

That said and turning to Europe for a moment, Moody’s just released an, in my view, a very important report: “European Union: Significant Political Change, Yet Economic Vulnerabilities Remain” that investors, who have interests in the EU as well as in the euro, could do well to take a look at.

Moody’s states that even if the EU survives its current challenges largely unscathed, even a ‘small’ future crisis could threaten the sustainability of current institutional frameworks, if it coincided with negative public sentiment and populist political developments.

Ultimately, any scenario that leads to even the partial break-up of the European Union would have material negative credit implications, albeit ones that may take many years to crystallize.

For long-term investors, this is very serious food for thought.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.

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Any scenario that leads to even the partial break-up of the Union would have material negative credit implications, albeit ones that may take many years to crystallize.
economy, invest, europe, brexit
Friday, 06 May 2016 08:33 AM
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