Low participation rate in US concern for Fed: Solaris AMC

In an interview to CNBC-TV18, Tim Ghriskey, chief investment officer of Solaris Asset Management believes the US Federal Reserve is unlikely to hike interest rates until and unless it sees the labour participation rates in the country begin to improve significantly.

The participation rate refers to the number of people who are either employed or are actively looking for work. The participation rate is an important metric to note when looking at unemployment data because unemployment figures reflect the number of people who are looking for jobs but are unable to secure employment. Also read: Is 'chaos' ahead? Some truths about Fed policy Below is the verbatim transcript of  Tim Ghriskey's interview to CNBC-TV18. Q: We have not seen much data out on Monday and Tuesday, markets have been broadly quiet. This market is focused on the Federal Open Market Committee (FOMC) minutes that will be released on today and if those minutes make no mention of a taper then what? A: Its vacation time in the US and that is why we are seeing such quiet market. Also a big reason why we have seen a pullback of 3 percent or so in the equity market; there simply haven’t been buyers out there buying. However, in terms of the Fed minutes, the key here will be to focus on what the Fed is going to do about tapering, in other words we do think their purchases of bond US treasury. The Fed has done a good job of getting the market ready for that eventuality that could come soon or could be another six months off but it is coming. The key here actually is the Fed has signaled that the participation rate, the labour participation rate, which has fallen dramatically in the US, is a concern to them. They might end up quantifying that and that would give the market some stability. We saw that on Tuesday in the US treasury market, which is having a bit of a rally. Q: Are you telling me that you do not expect the taper? Where are you putting your money? A: I think the Fed would know that when the tapering; the cutbacks would start. But if the Fed at the same time announce tapering and they would not raise interest rates until the labour participation rate in the US begin to increase, not only that unemployment declined to the target level but the participation rate would increase significantly. That might give the market more visibility into a longer period without higher interest rates. That is what the market is looking for here; a better visibility in terms of not having a higher interest rate environment.