A U.S. Federal Reserve interest rate hike in September is almost certain according to many forecasters and investors, but the decision to tighten policy for the first time in nearly a decade is not as clear-cut as it may appear.
As the U.S. Federal Reserve edges closer to its first interest hike in nearly a decade, its critics are lining up into one of two camps: either the Fed is hopelessly behind the curve, and will have to grapple with runaway inflation very soon; or the Fed seems overzealous in wanting to get interest rates back to what it would call a normal level and instead should wait until late this year or next before hiking.
from Morning Bid with David Gaffen:
The Federal Reserve is the early concern on the part of investors – Janet Yellen’s testimony is out in the morning when she appears before the combative House of Representatives, though her speech on Friday highlighting her concerns about ongoing slack in the labor market and the possibility that international issues may undermine the Fed’s plans fed the bearish case when it comes to rate increases.
from Morning Bid with David Gaffen:
The desire for the weekend would normally be among the motivating factors for hoping for a quiet day on Friday, particularly after the week the markets have endured - China continuing to melt down, Greece getting ready to go down the rabbit hole, the NYSE experiencing a three-hour halt as a result of a software update - if only the weekend didn't pose its own special danger. And before that, Janet Yellen stands in the way too, so the relief won't come for investors until that's done.
British wage growth will outstrip the Bank of England's forecast this year but that doesn't mean the first rate hike will come sooner.
Fed officials say they will be “data-dependent” when it comes to making monetary policy. San Francisco Fed President John Williams feels so strongly about it, he’s even printed up a T-shirt to get that message across. But truth be told, data-dependency is not as objective as it sounds. Data doesn’t dictate policy; it’s the interpretation of data that’s key. What is rate-hike-worthy data to one policymaker is keep-the-pedal-to-the-metal data for another. Take, for instance, U.S. GDP growth. Richmond Fed President Jeffrey Lacker says he expects GDP growth to average 2 percent to 2.5 percent this year, a pace that would justify a Fed rate hike in June. Chicago Fed President Charles Evans expects 3 percent growth this year, and does not believe even that would justify a rate hike until the first half of 2016. So what does it tell you about monetary policy if you see GDP growth of 2.5 percent? Not a whole lot, judging from these two. And the statements of other Fed officials are hardly more helpful. Indeed, as Atlanta Fed President Dennis Lockhart said recently, “I don't think it is advisable to approach such a decision with rigid quantitative triggers in mind.” Watch the data, sure. But don’t assume the data will tell you much about the exact timing of the rate hike. Monetary policy – it’s subjective. Maybe some policymaker will print that on a T-shirt.
The U.S. Federal Reserve may find it even more tough to raise interest rates as the year wears on if dwindling expectations for growth are any guide.
from Global Markets Forum Dashboard:
The monthly U.S. nonfarm payroll data for February will be released on Friday and with it, another swarm of speculation as to whether it will prompt the Fed to raise rates this year will follow.
from Unstructured Finance:
When Bill Gross shocked the investment world on Sept. 26 by storming out of Pimco, the most prominent bond investor in the world didn’t stop leaving people stunned.
It was later revealed by Reuters that Gross had paid an unlikely visit to his fiercest rival: Jeffrey Gundlach.
For two decades, the two had no relationship or interaction at all, even though their personas were intertwined, compared and contrasted often in the financial media and by other bond market players. (Morningstar named Gross "Fixed Income Manager of the Decade" in 2010, an award for which Gundlach was a finalist. Then in 2011, Barron's magazine anointed Gundlach as the new King of Bonds.)
Gross not only unexpectedly departed his firm for under-the-radar Janus Capital but also considered joining Gundlach’s DoubleLine Capital. Gundlach said the so-called “Dream Team” didn’t work out but “you never know what will happen in the future.”
Overall, the gesture by Gross officially affirmed the investment world’s long-held view that Gundlach had been anointed the new Bond King.
What follows are excerpts of my hour-long interview – unfortunately, not on the north loggia of Gundlach's Los Angeles home -- about Gundlach’s investment calls (old and news ones), his competitors, the future of fixed income and his firm’s fifth year anniversary which was celebrated on Sunday.