Tags: economy | investors | poll | trump

Fed to Hike Rates Amid Backdrop of Higher Inflation

Fed to Hike Rates Amid Backdrop of Higher Inflation
(Dollar Photo Club)

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Friday, 13 May 2016 07:18 AM Current | Bio | Archive


The Federal Reserve's goal of raising rates was repeated by a trio of speakers:

  • Boston Fed President Eric Rosengren, who is a FOMC voter, said in a prepared speech: “The market remains too pessimistic about the fundamental strength of the U.S. economy, and the likelihood of removing monetary accommodation is higher than is currently priced into financial markets … there can be potential costs to accommodation if rates stay too low for too long, potentially encouraging speculative behavior.”
  • Cleveland Fed President Loretta Mester who is also a FOMC voter said in a prepared speech about ‘Recent Inflation Developments and Challenges for Research and Monetary Policymaking’: “The most recent data are encouraging and consistent with the Fed policy committee’s view that inflation will gradually move back to target over time.” Remember that last month she said she did not want to wait too long to raise interest rates again.
  • Kansas City Fed President Esther George who is a non-voter at the FOMC said in a prepared speech: “Keeping rates too low can also create risks. Interest-sensitive sectors can take on too much debt in response to low rates and grow quickly, then unwind in ways that are disruptive … Because monetary policy has a powerful effect on financial conditions, it can give rise to imbalances or capital misallocation that negatively affects longer-run growth.”

In context of all the above, it’s interesting to see how the latest N.Y. Fed’s median expected inflation three years ahead now stands at 2.79/2.80 percent, which is well above where it stood in December.

Most inflation measures are about their long-term averages and with the Fed’s interest rates that are below 0.5 percent, this is not a happy combination.

Growth has generally been revised higher; inflation is generally being revised higher and amidst considerable structural change, there is evidence of capacity constraints being hit.

Elsewhere in the world, yesterday we had U.K. politics as a distraction.

The Bank of England, which is one of the few State institutions that can comment on the UK EU referendum without risk of persecution, commented yesterday on the UK EU referendum. The bank warned on the negative consequences from a ‘no’ or exit vote. The consequences in its view include heightened risk of recession and provoked a quick storm of outrage from those who advocate a ‘no’ vote.

However, as recent opinion polls indicate no-supporters typically base their support on immigration issues and not on economic issues, and therfore yesterday’s comments are probably not going to change the no-support.

Coming back to U.S. politics for a moment, this week the Quinnipiac University School of Law in Hamden, Connecticut released its “Quinniapiac University Poll” which could be helpful to investors.

The poll shows Hillary Clinton and Donald Trump are running neck and neck in the key presidential Swing States of Florida, Ohio and Pennsylvania and it may be helpful to remember that since 1960 no candidate has won the presidential race without taking at least two of these three states.

Of course, we all know that “past performances do not guarantee future results” and that Mark Twain said, “History doesn't repeat itself, but it does rhyme”…

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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Growth has generally been revised higher; inflation is generally being revised higher and amid considerable structural change, there is evidence of capacity constraints being hit.
economy, investors, poll, trump
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2016-18-13
Friday, 13 May 2016 07:18 AM
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