Tags: Rivelle | Fed | de-leveraging | rates

Money Manager Rivelle: Fed Must Raise Rates in 2015 to Avoid 'Violent De-Leveraging'

By    |   Friday, 05 December 2014 01:17 PM

The Federal Reserve's massive easing program has failed to boost the economy in synch with financial markets, and it must raise interest rates next year to avoid a crisis, says Tad Rivelle, chief investment officer for fixed income at Trust Company of the West.

"Kicking the can only means that the inevitable de-leveraging will be more painful," he writes in a commentary on his firm's website.

"A central bank that constructs its policies predicated on the exigencies of the here and now while ignoring the longer-term ill effects of these policies is an institution in denial. Sustainable growth — whether a household, business or a society — is a result of improvements to work process and product. The mere act of adding leverage to a business does not improve the efficiency of its factories nor do higher home prices increase the wages of the household that resides in the home."

The Fed has kept its federal funds rate target at a record low of zero to 0.25 percent for six years.

"When the endgame comes, leverage will be forced out of the system, and asset prices will fall," Rivelle notes.

"If the Fed is willing to recognize that, in the end, its policies cannot dictate economic realities, then we should expect the rate rises to begin fairly soon, presumably in 2015." While that would bring pain sooner, it would make the deleveraging mild, he writes.

But, "if the Fed is unwilling to remove the punchbowl, . . . it is the capital markets themselves which call the code red," Rivelle says.

"In that event, expect a violent de-leveraging."

Economists say the strong November jobs report released Friday will help push the Fed to lift rates. Payrolls climbed 321,000 in the month, a three-year high.

"I think it will put pressure on the Fed to raise rates in the first half of next year by June, perhaps even March," Craig Dismuke, chief economist at Vining Sparks, an investment brokerage in Memphis, Tenn., tells Reuters.

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The Federal Reserve's massive easing program has failed to boost the economy in synch with financial markets, and it must raise interest rates next year to avoid a crisis, says Tad Rivelle, chief investment officer for fixed income at Trust Company of the West.
Rivelle, Fed, de-leveraging, rates
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2014-17-05
Friday, 05 December 2014 01:17 PM
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