It’s interesting the whole world was focusing on Janet Yellen’s speech and responses at the Senate Banking Committee on Tuesday and Wednesday.
All the major banks have concluded together with the media that the word, ‘patience’, will be dropped in March and any rate hike if any will happen in June. Two dates momentarily cast in stone for now.
In my view, jobs creation, employment and unemployment are more important data compared to inflation for Janet Yellen. Though, recent CPI data suggests low inflation and that the revised 1.7% target rate may not even be hit is a lesser concern, then non farm payrolls and unemployment.
If I study the history of the past Fed chairmans including Greenspan and Bernanke, they usually get ahead of the curve and market expectations. They don’t like to be dictated by the media.
In the same tone, I believe Yellen will not subject herself to the pressures of the media, which is why her responses to Congress was non committal.
I believe she will pre-empt the markets and raise interest rates earlier than June.
I believe she will surprise the markets by raising rates in May. As long as non farm payrolls stay above the average of 200,000 and higher, it will give her the confidence to make the decision.
A strong US dollar is not necessarily a bad thing for the United States. Let’s not forget that the U.S., is a domestic economy and it only exports barely 6% of its GDP.
Therefore, ensuring that employment stays strong and wages bouyant will give Yellen the confidence to raise rates. High employment and good wages means American can better support consumption which is a main driver of the economy.
I believe inflation is on the rise in the U.S., although it doesnt seem to be manifesting in the data. Real estate prices are at all time highs and so is the financial markets thanks to cheap liquidity. However, can it be said that the fundamentals are supporting the real estate market and financial market?
Let’s see.
The Panthenon Investment Group 