While money market traders are betting that the Federal Reserve will increase interest rates next summer or later, Romain Hatchuel, managing partner of money management firm Square Advisors, doesn't see the Fed acting in 2015.
"There is every reason to believe that this month's highly anticipated end to so-called quantitative easing will be nothing more than a tactical retreat by the U.S. central bank, and that next year's rate increase won't materialize," he writes in The Wall Street Journal
The Fed has kept its federal funds rate target at a record low of zero to 0.25 percent for six years. So why would the Fed refrain from a rate hike next year?
"First, the U.S. economy remains stubbornly weak," Hatchuel says.
"In four of the past five years, the GDP growth forecast made by the Federal Open Market Committee at its November or December meetings for the following year has missed the mark by 0.5 percent to as much as 1.5 percent. . . . As much as Fed officials would like to revert to a more orthodox policy, such reversal is data-dependent, and when it comes to predicting data, their track record has been poor."
Foreign growth is sluggish too, which could impact the U.S. economy, he adds.
"Another reason to doubt the Fed's return-to-normalcy pledge is the recent appreciation of the U.S. dollar," Hatchuel writes. A strong dollar dampens inflation.
"'Don't fight the Fed' has become a sacred market mantra, and ignoring it has been a costly exercise for some," Hatchuel says. "Trusting the Fed, as it vows to end monetary easing and raise interest rates, could prove an equally harmful strategy."
Doug Kass, president of hedge fund manager Seabreeze Partners Management, also sees the Fed holding back on rates next year.
"I think we're approaching an 'aha' moment, when investors realize that growth isn't going to emerge in the months ahead," he tells The New York Times
"People are losing sight of the fact that the Fed hasn't raised rates since June 2006. I don't see them raising rates for two or three more years. That will be another surprise for the markets."
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