by Chris Becker
Although it has always been the right thing for the Fed to raise rates, bringing the cost of capital back to a realistic base and devaluing the orgy of debt built up since the last crisis, it’s now unlikely to do so for fear of a Lehman Brothers moment, turning this run of the mill bear market into a full blown risk crisis.
And the bets are turning further and further into 2016, with Barclays now pushing its expectations of a first rate rise into March 2016. From the on the ball chaps at Forexlive:
Barclays Capital moved its call for the first Fed rate hike from September 2015 to March 2016.
“Given the uncertainty around the current global outlook, the timing of the rate hike seems more uncertain than usual. Should this episode of financial market volatility prove transitory, the FOMC could raise rates in December. On the other hand, if the volatility proves durable or reveals greater than expected weakness in global activity, the FOMC may push the first rate hike beyond March,” Barclays argues.
“We see a delay past mid-2016 as a relatively low probability at this point given our views on US labor markets. The US has proven durable to shocks emanating from emerging markets in the past, and we believe the current bout of uncertainty to be less pronounced than the successive shocks from developed economies that rocked global markets in 2008, 2010, and 2010,” Barclays adds.
The overarching need to remove the deadweight from the global economic system by normalising rates will always be overshadowed by the short term tactical need to protect the US economy from any and every shock. Thus leading to bigger crises in the future.
The Great Volatility moves on..