Tags: Wien | Fed | rates | economy

Blackstone'sWien: Fed Will Probably Start Raising Rates in Q1

By    |   Wednesday, 04 February 2015 09:30 AM

While the market consensus is that the Federal Reserve will begin lifting interest rates around mid-year, Byron Wien, senior adviser to Blackstone, thinks it will move earlier, probably in the first quarter.

"Many believe this is unlikely because Europe is near or in a recession and Japan is suffering as well," he writes in Barron's. "They reason that increased rates will only make the dollar stronger and hurt our trading partners." They also point to sluggish wage growth — 1.7 percent in 2014.

"My view is that the Fed is most responsive to domestic data: the U.S. economy has been growing at 5 percent real during the last two quarters, unemployment has dropped below 6 percent and wages are starting to increase."

Wien wrote his column before Friday's news that GDP expanded 2.6 percent in the fourth quarter.

"Inflation is not currently a problem, [so] the increase in rates is likely to be small and more an indication of a change in policy focus than a vigorous attempt to slow down an overheating economy," he predicts.

The Fed has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008.

"I still believe 2015 will be a good year for United States equities. . . . I expect reasonable real growth of 3 percent from the economy in spite of slowdowns elsewhere in the world. Revenues should expand 4 percent and earnings 8 percent because of share buybacks, productivity, mergers and acquisitions and other factors."

Meanwhile, star economist Nouriel Roubini of New York University argues in an article for Project Syndicate that monetary stimulus has failed to solve global economic sluggishness because "simply put, we live in a world in which there is too much supply and too little demand."

The result? "Persistent disinflationary, if not deflationary, pressure, despite aggressive monetary easing," he writes.

The fact that monetary stimulus is accompanied by some degree of fiscal austerity in many countries, including the United States and Europe, is part of the problem, Roubini says. "To be effective, monetary stimulus needs to be accompanied by temporary fiscal stimulus."

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While the market consensus is that the Federal Reserve will begin lifting interest rates around mid-year, Byron Wien, senior adviser to Blackstone, thinks it will move earlier, probably in the first quarter.
Wien, Fed, rates, economy
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2015-30-04
Wednesday, 04 February 2015 09:30 AM
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