Tags: trump | healthcare | taxes | brexit

Roaring Inflation May Force Fed to Hike Rates Much Higher

Roaring Inflation May Force Fed to Hike Rates Much Higher
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By    |   Thursday, 30 March 2017 12:47 PM

A barrage of speakers from the Federal Reserve offered a view of up to three more Fed rate hikes this year.

The discerning investor can pick and choose which Fed speaker fits his or her own personal prejudice.

However, it is clear that Fed tightening is warranted by the steady rise in U.S. inflation and the debate is more about the degree of tightening and the mechanism of tightening that is required to prevent the Fed from slipping behind the curve.

It could be good to keep in mind that key indicators already suggest that the Fed’s announced tightening pace should preferably be accelerated or the risk is real for the Fed to be falling behind the curve, if it hasn’t already.

A central bank gets behind the curve when it is not raising rates at a pace fast enough to keep up with inflation.

Meanwhile, President Donald Trump's healthcare reform may be not quite as dead as had been thought.

Trump had told senators attending a White House reception that he expected lawmakers to reach a deal “very quickly” on healthcare, while he did not offer specifics.

For investors, the Trumpcare failure meant that the Trump administration would then have to move on to other issues, such as tax reform.

If the Congressional agenda is to be clogged up again with healthcare, investors may be unhappy with that. Such investor disappointment could hurt the financial markets.

Nevertheless, there seems, at least so far, to be little expectation for this, but it is certainly worth watching.

Besides all that, the long goodbye from the United Kingdom from the European Union is now underway with U.K. Prime Minister May declaring that there is no turning back, although in a legal sense there may be possibly a turning back, though it’s not likely.

Prime Minister Theresa May’s letter to the European Council President Donald Tusk reads the following important words: “The United Kingdom wants to agree with the European Union a deep and special partnership that takes in both economic and security cooperation … If, however, we leave the European Union without an agreement the default position is that we would have to trade on World Trade Organisation terms. In security terms a failure to reach agreement would mean our cooperation in the fight against crime and terrorism would be weakened.”

It's clear that she stressed the importance of free trade and warned that, and here we could use a ‘Yoda’ quote that says, fear is the path to the dark side, fear leads to anger, anger leads to hate leads to suffering and which here in the starting Brexit situation would mean less security cooperation in diminished global free trade environment, knowing that would happen when global trade is still in retreat.

Investors would be wise not to write off the Brexit saga as a pure EU/U.K. affair. There is no doubt whatsoever that this affair will cause uncertainty in a lot of unexpected important places as it will impact global trade and global security.

Considering that the U.K. ranks fifth in the world on a nominal GDP basis and, last but not least, the fact the U.K. is now on its way to leave the EU, this will mean for the EU it is on its way to ‘lose’:

  • one eighth of its population,
  • one sixth of its nominal GDP (Eurostat: UK represented 16.6 percent of 2016 EU nominal GDP),
  • half of its nuclear weapons and
  • one of its two permanent seats at the United Nations Security Council Security Council. The other seats remain with France alongside the United States, China and Russia.

The Brexit affair now descends into normal EU negotiations, and we all know what EU negotiations mean. The first major discussion will be about how discussions are to take place.

There is at least 2 years of noise ahead, and probably more.

For now, and to quote Senator Palpatine, who stated during the final years of the Galactic Republic that "enter the bureaucrats - the true rulers of the republic."

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.

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A barrage of speakers from the Federal Reserve offered a view of up to three more Fed rate hikes this year.
trump, healthcare, taxes, brexit
Thursday, 30 March 2017 12:47 PM
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