The latest Fed minutes show the central bank is in no hurry to raise rates, and the US central bank is likely to wait until 2016 before making any move, said Lindsey Piegza, chief economist at Sterne Agee.
Right now the Fed’s focus is the international economy, which reflected in their January statement for the first time. The rapid rise of dollar that is causing erosion of US exports and sending business and revenues overseas prompted the Fed to downgrade expectations for growth, inflation and the pathway to rates.
Any further rise to the dollar, which the Fed expects to happen in future, will only erode activity in the domestic economy and push out that rate forecast until the end of 2015 at the earliest, although Sterne Agee’s forecast for a probable rate hike remains 2016, she noted.
The US economy has witnessed great improvement over the past four–, five years, though the pace of recovery has been incremental and not exponential, said Peters, CEO of Bluestone Funds.
Investors need to remember Fed chairwoman Janet Yellen is more dovish than former Fed chief Ben Bernanke, but she’s getting some push-back from some of the Fed members. So, it’s more likely that the Fed will hike rates first in September, followed by another hike in December. A big concern among Fed members currently seems to be the misallocation of resources; i.e. investors buying-up junk bonds (below investment-grade bonds) which in turn, have pushed down yields to 6-7% from 12-13%, he said.
Many of the Fed’s FOMC members including vice-chair Stanley Fischer and New York Fed President & CEO Bill Dudley gave the impression the central bank was anxious to raise rates.
Asked if the Fed could possibly raise rates in September, Lindsey said they have been anxious about raising rates for the past five years. Since 2009 the Fed has been forecasting a rate increase “next year” while investors have been anticipating a lift-off for the past five years.
That said, there’s no denying the fact that the Fed is getting some push-back from the most hawkish members. But investors need to keep in mind the voting members are decisively dovish with only a single hawk sitting among them. So, a unanimous-vote to continue to push back the rate-hike decision until 2016 is more likely, she concluded.
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