Tags: Federal Reserve | rates | China | outlook

Fed Officials Hint at Rate Hikes Ahead of Jackson Hole Meeting

Fed Officials Hint at Rate Hikes Ahead of Jackson Hole Meeting

(Stock Photo Secrets)

By
Wednesday, 17 August 2016 11:25 AM Current | Bio | Archive

A couple of days ago, San Francisco Fed President John Williams gave interesting (somewhat complicated) remarks in the bank’s own “Economic Letter” that provide investors some helpful elements for getting a somewhat better understanding of what better should be changed not in monetary policy alone, but also how political authorities should better do their part for stimulating the recovery through changing, for example, their fiscal policy:

“We are seeing the future now and have the opportunity to prepare for the challenges related to persistently low natural real rates of interest. Thoroughly reviewing the key aspects of inflation targeting is certainly necessary, and could go a long way towards mitigating the obstructions posed by low r-star ‘central bank’s short term interest rate that is a function of the economy and that is beyond its influence’ ... But that is where monetary policy meets the boundaries of its influence. We’ve come to the point on the path where central banks must share responsibilities. There are limits to what monetary policy can and, indeed, should do. The burden must also fall on fiscal and other policies to do their part to help create conditions conducive to economic stability.”

Taking into account we are in a presidential election year, it is really interesting to see these kind of observations being published only three months before the election date.
New York Fed President William Dudley just said: “We’re edging closer towards the point in time where it will be appropriate I think to raise interest rates further ... I think it’s possible to hike in September ... we’ll have to see where the data falls."

Atlanta Fed President Dennis Lockhart just said: “I would not rule out September for a hike ... If the meeting were today I think the economic data would justify a serious discussion.” He also added: “It’s conceivable we could have two rate increases this year … and looking toward 2017 “If my outlook materializes, then I could imagine certainty two rate increases next year, possibly more.”

In simple words, if these gentlemen got it right, the start of the upward path of the Fed funds rates is coming nearer and could be steeper than markets have been expecting until now.

Yes, there is change in the air and if all this materializes there is no doubt whatsoever this will have consequences for the broad-based markets in developed as well as in emerging markets as downside risks will starting tilting to the downside and while the dollar could be at the start of another upside move.

This afternoon we’ll get the minutes of FOMC’s July 26-27 meeting, of which I don’t expect any form of clear guidance on the timing of the next Fed funds rate hike, but and in this context it could become interesting (hopefully!) to hear what Fed Chair Ms. Yellen’s is going to tell us at next week’s very highly ranked Economic Symposium about “Designing Resilient Monetary Policy Frameworks for the Future,” which is organized by the Kansas City Fed on August 25-27 in Jackson Hole.

Over in Japan, Masatsugu Asakawa, vice minister for international affairs at the Finance Ministry just told reporters his government is watching the FX market carefully and will respond if there are excessive moves (read = intervention is still on the table). He also stated that his Ministry is exchanging views with Japan’s G7 partners concerning the FX markets and the recent strength of the yen.

Finally, investors should better not overlook the fact that, and notwithstanding optimistic calls from many places, the world economy is still barely growing.

In this context, Moody’s just released a report titled: “Steel - Asia: Lower Earnings Keep Outlook Negative.”

Moody's expects Asian steel demand will continue to decline by a low-single-digit percentage in the next 12 months, owing mainly to slowing demand from China's manufacturing and property sectors. Keep in mind that China accounts for about 70 percent of Asian steel consumption. Besides that, China's own production will likely contract 3-4 percent in the next 12 months.

There is little doubt that China’s own growth pattern is very well reflected by its steel consumption.

Besides that, it’s also a fact that China sets the tone, at least until now, of global growth.
Looking at all that, it remains extremely difficult for getting seriously optimistic about global growth over the short to median term.

In my opinion, the extreme levels of complacency and historical low volatility levels we keep witnessing these days are unsustainable, but, as always, could last much longer that logic tells us, while, and that's also a proven fact, the longer this situation lasts the more important, for whatever reason, the reversal will be.

Investors should better remaining aware of that.

 

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.

 

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
HansParisis
A couple of days ago, San Francisco Fed President John Williams gave interesting (somewhat complicated) remarks in the bank's own "Economic Letter" that provide investors some helpful elements for getting a somewhat better understanding of what better should be changed not...
Federal Reserve, rates, China, outlook
819
2016-25-17
Wednesday, 17 August 2016 11:25 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved