3 Macro Views Ahead Of The Fed Meeting

June 09, 2015

 
Shehriyar Antia
Antia is the founder and chief investment strategist of Macro Insight Group. Previously, he held a number of leadership roles at the New York Federal Reserve.
 
How are you feeling about the U.S. economy and equities right now? What’s your feeling going forward with this persistent strong dollar?
The U.S. economy clearly had a very poor first quarter, but we’re poised to do better over the rest of the year, the growing head winds notwithstanding. I expect the GDP growth to rebound in the second and third quarter. There are some indications that consumers will start to spend some of the fuel cost savings that they’ve been accruing.
 
I expect inflation to stabilize over the summer and then to start to trend up in the fall. The punch line for that is that I expect the Fed consequently to be extremely patient with the economic rebounding prices. And I don’t expect an interest rate increase before December.
 
What does that delay mean to an ordinary-citizen investor? Is it important for investors to worry about when the Fed will raise interest rates? 
What that means for markets is that a slow-moving, deliberate Fed is generally supportive of stocks, both here and abroad. Valuations tend to be a bit richer here, but looking at equities broadly in the U.S., the combination of the patient Fed and the better growth outlook means that equities are likely to have some more room to run.
 
So yes, U.S. equities have had some more room to run, but I anticipate there will be fewer record highs than the last few years as some of these head winds continue to grow. There are two head winds in particular I’m thinking about: One is a stronger U.S. dollar that actually challenges earnings. The other is short-term and medium-term rates rising in anticipation of Fed action. And we’ve already seen that happening.
 
What are some other worrisome spots?
One area that is a concern for me and that I’ve started to think about, when I look forward six, 12 months down the road is that I’m seeing very few real drivers of strong growth or excessive inflation. Yes, disinflation and inflation are stabilizing, but I’m not seeing any signs of runaway, really strong, robust growth or excessive inflation. The typical drivers of growth over the last era have been emerging markets, the U.S. consumer. It isn’t clear that anyone is stepping up and taking leadership to sort of drive global growth going forward.
 
So that’s one concern for me. There are unintended consequences that are going to be out there that are not quite foreseen at this time. 
—Drew Voros
 
 
 
 
 

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