In an interview to CNBC-TV18 Peter Hooper, chief economist, Deutsche Bank Securities shared his views on US Federal Reserve's move to end quantitative easing III and its impact on global economy. According to him, the Fed sounded more hawkish and indicated that the labour market is improving. He expects Fed to hike rates by June 2015.
Below is the transcript of Peter Hooper's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: What is your reading of the Federal Open Market Committee (FOMC) statement? I am particularly intrigued by the fact that US stocks missed a bit, ended slightly lower but Asian stocks have welcomed the Fed’s announcement and have a spring in their step this morning?
A: The initial read was that the Fed was sounding more hawkish, they were certainly sounding more upbeat about the improvement in the US labour market, but if you read the statement carefully, they also were concerned on the inflation side. So there was no real change if one knows how the Fed thinks inside. My sense is they did not intent to give a significantly more hawkish message, their intent was steady, things were improving enough to end the quantitative easing on schedule and give an indication that we still think that the rate hike by the middle of next year is the most likely outcome.
Sonia: Would you stick with your estimate of a rate hike by June next year or have you changed it post the policy statement?
A: They are not going to do it sooner. They kept the important phrase there that they do not expect to raise rates for a considerably time after having ended quantitative easing (QE) and at the same time they noted that the economy is doing quite well, labour market improving nicely, so no reason that it will be delayed substantially except for the one little issue about inflation. They noted that some of the recent moves on inflation has been little softer. So, that’s the one thing that they are looking at carefully and they are seeing some improvement. So bottomline as I still think that little of next year is the most likely outcome and some important members of the FOMC has been saying publicly.
Latha: Up until then or at least for the foreseeable future we are going to continue to see dollar strength because the central bank moving towards a rate hike sooner or later while Europe moves towards quantitative easing. How would you look at the euro dollar for instance over the next six months?
A: I certainly think this as you say points for further strengthening of the dollar. Euro headed towards 1.20, possibly lower. I think euro has its challenges. Our house call is that this is going to be getting into some quantitative easing itself, purchasing some government bonds but I do think that further weakness of the euro for strength for the dollar to come here.
Sonia: What would all of this mean for emerging markets like India? We have seen the Morgan Stanley Capital International (MSCI) emerging market rise 3 percent in the last two trading sessions but what would your prognosis be for emerging markets now?
A: The good news here is that the US economy is improving enough to be taken more seriously by the market that it is going to be coming out of this unusually easing stance of monetary policy. Yes, rise in interest rates by itself is not a favourable development but what is driving that the stronger performance of the US economy is clearly a plus and that’s more important. Overall this is a good development for the global economy. The signs of slowdown elsewhere not significantly affecting the US prospects and the US will continue to be an engine of growth globally.
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