Fed may be determined to hike rates - Rabobank

Michael Every, Head of Financial Markets Research at Rabobank, suggests that the Fed may be determined to hike rates.

Key Quotes

“Due to the realization that at this stage into the recovery (8 years!) it may be more damaging to market confidence to try to keep rates low than it is to raise them: by showing you can raise rates you then generate the optimism to drive higher capital spending and/or wage increases.

Admittedly, we live in a new normal and it would be deliciously ironic if higher rates generated the confidence that ultra-low rates have failed to. However, it’s a risky strategy akin to sticking a pillow up one’s dress or developing an hysterical pregnancy in the hope that a flow of gifts will follow: you might get away with it for a while but the policy is likely to fall very flat after nine months. Will the patter of tiny feet ahead be of investors heading for the exits as in January?

Of course, the Fed’s task is made that much harder by our complex global situation. Given how correlated the current asset recovery is with oil prices, how can the latter be sustained with higher US rates/a stronger USD? Notably, Brent failed to hold the psychological USD50 level yesterday.”