Fed hike likely in March but EM momentum remains positive: Citi

The employment data in the US does not show any spectacular progress, but remains steady, Willem Buiter, Chief Economist at Citi told CNBC-TV18 Thursday. This may result in the US Federal Reserve hiking key rates when it meets in March, he added.However, he said emerging markets are unlikely to falter as the momentum in the emerging markets steadily pick up pace in 2017. He said, for instance, the worst performers of last year, Russia and Brazil, are showing various positive signs.The dollar's movement will largely depend on the fiscal package that is proposed to the US Congress, according to the economist, who sees a slight uptick in the dollar in 2017.Below is the verbatim transcript of Willem Buiter's interview to Latha Venkatesh and Anuj Singhal on CNBC-TV18. Latha: President Trump’s speech was certainly unifying but it was an America first speech. So first things first, when do you think you will get some details of tax cuts or border tax adjustments, will it happen in a quarter or two? A: I think the details of what will be proposed in terms of legislation could come in the next couple of months if you want to have any chance of seeing it enacted before 2018. Of course, there were very few specifics in industry, which he mentioned trillions worth of infrastructure spending but the details of any tax cuts and all these things weren’t even mentioned. So it was a speech that was very short on specifics and even if it had been very specific, of course the President doesn’t make fiscal policy. It is the Congress and they have a mind of their own. Anuj: But he is sticking to the pre-election script. In that case, do you think the emerging economy especially the ones exporting to US have reason to get worried or would you say that is already in the price or already baked in? A: The Trump, the trade warrior is not priced in emerging market stocks, exchange rates or any other asset price. A lot of them I think people are pricing in him as a tough negotiator who opens -- are going to be mainly bilateral negotiations. So I do think that there are risks that specific sectors and specific countries may fall far off on the president but Trump recognizes and his cabinet recognizes that the US too is vulnerable to financials interruptions. So I think that this particular soup won’t be eaten as hot as being served. Latha: What are you advising your fund managers? Are you telling them that this is a zero-sum gain story that President Trump is betting on? A: Not necessarily. Negotiations could take the form of the US demanding greater access to the key emerging markets, China included and that would therefore be a bilateral war of words which could lead to some trade liberalisation. However, I think it is not necessarily negative. This is a negotiation, this is not the blind imposition of tariffs and all the barriers to trade. This is an attempt as much to buy data access to American corporates abroad and to discourage foreign direct investment (FDI) for America abroad plus it is an attempt to punish those who export to the US -- the selective industries, the steel and the similar ones which have been in the loose and where there has been massive dumping in the global markets. We could see some additional trade barriers without prior negotiations but I think most of this is just the opening gambit of bilateral negotiations in US and those EM and advanced economies. For full interview, watch video...