And equity markets “traded sideways for between six and 12 months and after that gained strongly, with the United States market massively outperforming in 1995-97, while Europe and Asia did much better than the USA in 2005-07”.
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Nigel Green, chief executive officer and founder of financial advisory firm deVere, believes that strong economic data coming from the U.S. means that the Fed will raise interest rates for the first time in nine years next month.
The comments by Fed Vice Chairman Stanley Fischer could be taken as yet another signal the central bank is less willing to let low inflation further delay policy tightening. He expects the pace of tightening will be quite gradual once lift-off occurs.
The dollar hovered a little below Yen 123 late on Thursday at Tokyo trading as the mood was more of wait and see as to what might happen during the speeches by the officials of the US Federal Reserve including Janet Yellen, the Fed Chair.
COMMODITY CRUNCH: A deepening slump in oil, metals and other commodities was putting investors off. Copper prices are down 23 percent this year while crude oil futures fell 2.7 percent on Thursday.
“As everyone has been focused on the date of liftoff, Yellen and most others have been trying to shift the focus to the path”, said Kim Rupert, a San Francisco-based economist at Action Economics LLC.
After holding fire in October, Fed officials have one more chance to lift rates from their extraordinary near-zero threshold before the end of the year.
Stocks, which have benefited greatly from a Fed monetary policy that all but forced investors into riskier assets to boost returns, will likely suffer from a knee-jerk, risk-off reaction.
In South Africa, where the rand fell to a new low of 14.4285 against the dollar last week, the central bank has raised the benchmark interest rate by 100 basis points since the beginning of past year.
Indian ADRs ended in red, HDFC Bank was down 1.21%, Tata Motors was down 0.72%, Dr. Reddy’s Lab was down by 0.30%, ICICI Bank was down 0.13% and Infosys was down 0.11%.
The Fed’s preferred inflation measure rose just 0.2% in September, and is up only 1.3% in the past year.
“More generally, the decline in October does not indicate that deflation risks are rising and shouldn’t prevent the Fed from raising interest rates at December’s FOMC meeting”, he added.
Despite the disinflationary pressures, the forward-looking Fed is unlikely to wait to see “the whites of inflation’s eyes” before raising interest rates.
To be fair, this is mostly because energy prices have fallen dramatically over the past year. The median forecast in a Bloomberg survey projected a 0.2 percent gain.
Kenya’s central bank increased its policy rate by 3 percentage points in June and July.
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Although various Fed members have talked down the role of inflation in the December rate decision a negative CPI or core CPI could raise questions ahead of a change in monetary policy.
