Shinsei Corporate Management: The Fed's Got Nothing
Another month, another stall on rate hikes expected at the US central bank
As this month's Fed meeting draws near, the talking heads and pundits have emerged to chew the fat over when the US central bank will increase interest rates
NEW YORK - April 27, 2016 - PRLog -- Federal Reserve Chair Janet Yellen and her fellow voting members will have an opportunity this week to signal whether they envisage hiking rates as soon as June. The message, as always, is likely to be "it's a probability, but nothing is written in stone."
The Federal Open Market Committee's post-meeting statement will likely read "Rates remain on hold but we're data-dependent."
Such is the extent to which the language used in these statements parsed and pored over by the market that any change in the carefully-worded prose is just as likely to create more questions than the message itself answers notes, David Stock, Chief Economist at Tokyo-based securities house, Shinsei Corporate Management.
"The central banks - the Fed in particular - have interfered so heavily and broadly in the operation of the financial markets that their administrations have become more relevant to asset values than they are to the real economy. Trillions in quantitative easing haven't trickled down to Main Street and have only served to enrich those already at the top of the wealth ladder hence our obsession with their decisions," he explains.
Stock believes that the consensus revealed in the minutes of the last Fed meeting will carry through to this one and he expects voting members to remain wary of the global economic sluggishness and the downside risks it poses to the US economy.
"At the risk of sounding like a perma-bear, there is little on the economic data to even begin to nudge the needle on the optimism meter," said Stock. "Everything is flat or heading lower with the only exception being jobs and this, we suspect, is the only reason investors are willing to pay attention to the Fed. It's the only silver lining out there in a very cloudy sky even if the jobs are only part-time burger-flipping roles."
Stocks have recently pared all their losses from the January rout that sent the Dow Jones Industrial Average into bear market territory. The ensuing rally is the second-longest in history trailing only the bull market rally that followed Black Monday, October 1987 all the way through to the top in 2000.
There is a growing sense among investors that while the Fed's desire to normalize (whatever that means any more) monetary policy isn't in doubt, they lack the ability to overcome their fear of tipping markets over the edge.
Regional Fed chiefs Eric Rosengren of Boston and Chicago Fed President, Charles Evans of Chicago have gone to considerable lengths to warn the markets that another two rate hikes in 2016 is a good wager, but Shinsei Corporate Management are not convinced.
Shinsei Corporate Management expects the economic data to deteriorate and with it, the chance of any rate hike this year.
Source: Shinsei Corporate Management
Shinsei Corporate Management