Tags: Reinhart | Fed | rates | 2016

Morgan Stanley's Reinhart: Fed Won't Raise Rates Until 2016

By    |   Monday, 08 September 2014 09:03 PM

Many economists expect the Federal Reserve to begin increasing interest rates in the second or third quarter next year.

But not Vincent Reinhart, chief economist at Morgan Stanley and a former top official at the Fed. He wrote in a commentary obtained by MarketWatch that he doesn't expect a rate hike until the beginning of 2016.

Once the central bank signals that a rate rise is imminent, financial markets will freak out, and that will cause the Fed to hold back, Reinhart says.

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

The market reaction will be similar to what happened in the spring and summer of 2013, when the Fed indicated it would soon begin tapering its bond purchases. Interest rates soared.

Once investors panic, Fed Chair Janet Yellen will have to choose between the risk of boosting rates too soon and the risk of moving too late, Reinhart writes.

"Our view is that she will accept the latter risk, going lower for longer in the fashion consistent with central bankers lingering with policy accommodation."

The Fed has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008. Reinhart thinks the Fed will raise it to 3.5 percent over the next few years.

Meanwhile, economist/financial author James Rickards says the winding down of quantitative easing doesn't bode well for the economy and financial markets.

After the Fed's prior two quantitative easing operations, both the economy and the stock market suffered, he notes.

"It's happening again, but in slow motion, because the QE3 taper was gradual and from a higher level," Rickards told CNBC. "When this third taper is done in November, the weakness will become apparent."

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

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Many economists expect the Federal Reserve to begin increasing interest rates in the second or third quarter next year. But not Vincent Reinhart, chief economist at Morgan Stanley and a former top official at the Fed.
Reinhart, Fed, rates, 2016
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2014-03-08
Monday, 08 September 2014 09:03 PM
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