FYI | Jul 06 2009
By Chris Shaw
Over the past few weeks the US market has begun to price in the possibility of the US Federal Reserve lifting interest rates some time in the next few months, but in the view of TD Securities global strategist Stephen Koukoulas such an assumption is incorrect as the Fed remains a long way from increasing rates.
According to Koukoulas there are a number of indicators supporting his view rates will remain low for some time including the employment ratio, which is the percentage of the population actually employed, as it suggests interest rates should be even lower to account for the rate of job destruction the US economy has experienced as part of the global downturn.
This indicator has to turn before there is any threat of an increase in interest rates in Koukoulas’s view, while he also suggests the fact capacity utilisation is presently at an all-time low means inflation is currently no threat as a low capacity utilisation figure always coincides with a low inflation figure.
The fact nominal GDP is also declining at the moment suggests little upward pressure on prices, while Koukoulas notes the CPI (consumer price index) itself is also low, having fallen significantly over the past 12 months.
All this leads Koukoulas to argue the next (and first in a new cycle) rate hike from the US Federal Reserve is so far into the future it is not worth worrying about at present.
