Tags: David Riley | credit | Federal Reserve | rate

Money Manager Riley: Fed Rate Hikes Could Trigger 'Destabilization'

By    |   Tuesday, 24 March 2015 11:30 AM

Investors are intently focused on when the Federal Reserve will begin raising interest rates, and the process may end badly for financial markets, says David Riley, head of credit strategy at Europe's BlueBay Asset Management.

After a dovish statement from the Fed last week, many expect the central bank to hold off on a rate hike until September.

"The ultimate destination is unknown and could trigger destabilizing shifts in global capital flows and currencies," he writes in the Financial Times.

"In response, uncoordinated national policies and distorted financial markets could further fragment the international monetary system." A currency war already is raging around the world.

One problem is divergence in monetary policy, Riley says. The Federal Reserve is tightening monetary policy while many other central banks, including the European Central Bank and Bank of Japan, are easing full bore.

It's possible that "the fault lines in the international monetary system will be exposed by the stark divergence in monetary policy between the U.S. and the rest of the world, reflected in the dramatic appreciation of the U.S. dollar," Riley states.

The dollar has risen to multi-year highs against a range of currencies in recent years.

Many investors are confused about the Fed's intentions, and for good reason, says Charles Lieberman, chief investment officer of Advisors Capital Management.

"The Fed has prepared the way for hiking interest rates, even as it suggests that it has reasons to wait," he writes in a commentary provided to Newsmax Finance. "Its forecasts remain nothing short of strange, which contributes to many inconsistent misinterpretations of its views."

In their forecasts last week, Fed officials cut their projections for economic growth and interest rates. The central bank "also reduced its unemployment rate forecast, yet retained a projection for unemployment that is unduly pessimistic," Lieberman says.

Most Fed officials forecast an unemployment rate of 5 to 5.2 percent for year-end, down from their December prediction of 5.2 to 5.3 percent.

"The implicit message is policymakers would prefer to keep rates down as long as possible," Lieberman writes. But he sees the Fed moving in June.

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Investors are intently focused on when the Federal Reserve will begin raising interest rates, and the process may end badly for financial markets, says David Riley, head of credit strategy at Europe's BlueBay Asset Management.
David Riley, credit, Federal Reserve, rate
349
2015-30-24
Tuesday, 24 March 2015 11:30 AM
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