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A Few Fed Rate Hikes Still Possible This Year

(Paulus Rusyanto/Dreamstime)

By    |   Thursday, 07 February 2019 08:53 AM

Former Fed Chair Yellen Gives Her Actual Views

Speaking in an interview with Steve Liesman, CNBC’s senior economics reporter, former Federal Reserve Chair Janet Yellen gave various interesting remarks, saying and also confirming what we already did know, of course among a lot of other things:

“So far, the economic data for the United States is solid and strong. We've got, as you know, about the lowest unemployment rate in 50 years, continued solid job performance, low inflation. And my own view is that with long expected growth to slow in 2019, relative to last year which probably will come in around 3 percent or more,” Yellen told CNBC.

“We are seeing slowing global growth. The data from China have been reasonably weak and the European data has also come in weaker than I think had been expected. So there are those risks," yellen said.

"There are risks stemming from trade policy, from Brexit and uncertainties around various political decision making. We've also seen, of course, a tightening of financial conditions … consumer spending is still two-thirds of all spending in the U.S. economy and with slightly higher wage gains and strong job market performance, low debt burdens, I think consumers are in good shape to carry forward growth in 2019,” Yellen said.

“Is there any evidence of upside inflation pressure? So I won't rule out that that could happen. It's possible, especially if we get strong growth this year and the labor market continues to tighten. It's not out of the question that the Fed might need to raise rates again, but waiting to see.”

So, as an investor, I would prefer to take into account when I have to make decisions for a long-term investment that a couple of  Fed rate hikes later this year are still a possibility that can't be discarded.

US Data Drought

In the U.S. we are still facing something like a data drought.

The Bureau of Economic Analysis (BEA) has informed it will release the 4th quarter GDP for 2018, originally scheduled for January 30, on Thursday, February 28.

The BEA is calling this the ‘initial’ release which will compress what are normally the 1st and 2nd estimates (the 2nd estimate was originally scheduled for February 28). The final release for the 4th quarter GDP remains scheduled for March 28. All this under the condition of course we haven’t another partial government shutdown before.

German Industrial Production

Over in the Euro area we got the release of German industrial production data that disappointed. This is a subject in which economists are interested in as the question remains when will the ‘momentum’ of the German economy be picking up again.

So far, Germany’s industrial production failed to rebound and after the 1.3 percent monthly decline in November, output declined a further 0.4 percent in December, which confirms that the sector ended 2018 in ‘technical’ recession.

By the way, when the economies in the world are measured by nominal GDP, Germany ranks as the world’s 4th economy that comes after Japan and before the United Kingdom and of which of course the U.S. ranks first and China second.

All this is important for investors because if the Eurozone GDP would weaken too and the ECB would have to revise down its economic forecasts yet again in March then new monetary stimulus may not be too far off, which is of course a negative for the euro.

For the moment, the euro has weakened on the news to the lower zone of $1.13 against the dollar

Brexit Saga Continues

The Bank of England is meeting today while it is tempting to pretend that the interminably tedious EU-UK divorce process isn’t happening, the Bank of England can’t actually do that and so will end up doing nothing on policy instead.

The uncertainty is delaying corporate investment into the UK.

The exciting prospect of yet another delay to the exit from the EU means that investment will be delayed further and that in turn the interest rate that the UK economy would otherwise justify.

There were suggestions yesterday that the next parliamentary debate on the divorce could be delayed beyond the 13th of February. In other words, the debate to delay the ‘divorce’, which is delaying investment in the UK may be delayed.

The rhythmic thumbing sound that can be heard is the noise of economists striking their heads repeatedly against their desks with despair, the Express reported.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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So, as an investor I would prefer to take into account when I have to make decisions for a long-term investment that a couple of further Fed rate hikes later this year are still a possibility that cannot be discarded.
investors, fed, rate, hikes
Thursday, 07 February 2019 08:53 AM
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