Tags: Lieberman | Fed | forecasts | rate

Charles Lieberman: Fed's Forecasts 'Remain Nothing Short of Strange'

By    |   Tuesday, 24 March 2015 10:00 AM

Many investors are confused about the Federal Reserve'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. "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 notes.
 
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.
 
After the Fed's dovish policy statement last week, many analysts pushed out their forecast for the central bank's first rate increase until September. But Lieberman thinks it will be June, "because we see the labor market getting tighter and expect this labor scarcity to be reflected in rising labor costs."
 
Average hourly earnings rose 2 percent in the 12 months through February.
 
"Despite [Fed Chair] Yellen's own comments that wages are a lagging indicator, it appears that this Fed will not act in anticipation. It prefers to start late rather than early," he explains. "This raises the risk that when the Fed starts to raise rates, it may be forced to act far faster than is currently priced into the market."
 
Meanwhile, Washington Post columnist Robert Samuelson says the Fed is between a rock and a hard place as far as determining when and by how much to raise interest rates. That's because it's difficult to know how rate increases will play out.
 
"Higher short-term rates might trigger turmoil in stock and bond markets, as investors adjust to tighter credit," he writes.
 
"But it's also possible that the reaction would be muted. The Fed mainly controls short-term rates, and there is only a loose relation between these rates and rates on long-term home mortgages and bonds."
 
Many economists expect the Fed to boost rates in 25-basis point increments. It has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008.

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Many investors are confused about the Federal Reserve's intentions, and for good reason, says Charles Lieberman, chief investment officer of Advisors Capital Management.
Lieberman, Fed, forecasts, rate
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2015-00-24
Tuesday, 24 March 2015 10:00 AM
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