International Partners says the Federal Reserve is facing a test of its credibility as more investors adjust their expectations for the central bank to deliver an interest rate hike in September as the US economy continues to send mixed signals as to its readiness to accommodate tighter monetary policy.
Poor retail sales, weaker consumer sentiment, falling commodity prices and a marked slowing in corporate earnings growth are pointing to a slowdown in the 6 year old US economic recovery just as the Fed prepares to pull the trigger on the first rate hike in nearly a decade.
Despite assertions from various Fed voting members that the country is ready for higher rates, the minutes of the Federal Open Markets Committee's July meeting showed that all but one member felt it was too early to act.
"This seemingly perennial merry dance the Fed is leading investors on is losing them credibility" said Tim Beresford, chief economist at International Partners. "They've said that a hike is 'data dependent' but with unemployment down at 5.3%, some are asking just what it is they're expecting the data to say. They seem to be having a 'Goldilocks' moment in which the data can't be too hot or too cold; it has to be just right," he added.
Despite the importance of appearing earnest, the Fed will be mindful of the global equity market selloff and the implications for the global economy if it raises interest rates but International Partners says the effect of the rate hike is already factored into markets.
"They've spent the whole of 2019 threatening to raise interest rates and investors have positioned themselves for that eventuality. However, failure to raise in September will only leave December as the remaining possibility this year and, frankly, we don't think the Fed would want to be hiking rates in what is the most important shopping season of the entire year," concluded Beresford.
About International Partners
International Partners understands that only a plan that's personally focused can help you navigate an investment environment that's become increasingly complex and volatile.
Their investment plans are designed to consider - among other matters - your short-term cash-flow requirements, time horizons, your retirement plans and any gifting or legacy aspirations you may have. Planning of this precision can only be effected by a personalized approach and this means that yours will be a tailor-made, bespoke plan that will be of no use to anybody else.
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By Benji Marks