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Last Updated : Jun 16, 2016 11:51 AM IST | Source: CNBC-TV18

See 2 Fed hikes this year; stick to median forecast: JP Morgan

James Glassman, Senior Economist at JP Morgan thinks the Fed is likely hike at least two times this year.


The US Federal Reserve yesterday left the funds rate unchanged at 0.25-0.50 percent and six of Fed officials see only one rate increase in 2016, up from 1 in March.


But James Glassman, Senior Economist at JP Morgan, thinks the Fed is likely to hike rates at least two times this year.


He said that the Fed, in its commentary, sounded a little more cautious, because of the recent soft jobs report but added that most other news on the job front was decent and growth too is picking up. So, there is a case for the Fed to continue with its median forecasts.

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The Fed sees funds rates at a median of 0.875 percent at end of 2016 and 1.625 percent at end of 2017.

Below is the verbatim transcript of James Glassman's interview with Nigel D'Souza and Ekta Batra on CNBC-TV18.

Ekta: What is your sense, how many rate hikes ahead?

A: Some of the Fed members' forecast that the median view didn’t change but the Fed turned a little more cautious in terms of how many moves. I still think, it is very possible we will get another maybe two moves this year.

Some of my colleagues think one move but the thing is until two weeks ago, the Fed was pressing to get the market to go along with the idea that the Fed could start moving in June and then something happened. What was that something that happened? One report came out, one weak job report and so it is not the British referendum, the British referendum has been known about for a month and it is obviously news that is coming out of US the bounce back in Q2 seems to be a little stronger than the new news.

So we have seen no change in the outlook from the Fed and yet they have turned a little more cautious because the market has always been more cautious than the Fed has been. So I am not sure why this is a market event because essentially what the Fed is saying is it is moving closer to the market deal although they still are more aggressive but I think a lot is going to depend on -- we look at what is going on in the US economy, in the labour market yes, one report we had was very soft but most of the information on the job market is pretty descent and growth is picking up.

So I think there is still going to be a case as we get several months down the road and get some of the uncertainty behind us and there is still be a case for the Fed to continue on this path that the median forecast at least calls for if not most of them.

Janet Yellen is probably among those who have changed their views slightly, talking about only one move by the end of this year. So that is the unknown and I think a lot is going to come down to that next round of labour market reports because the one we just saw that changed the Fed\\'s mind very well could be an outlier. Just came out of blue and a lot will depend on how that news plays out over the next month or two.

Nigel: Let us push that point forward in terms of Brexit, you have seen these European markets correct, global markets as well are looking nervous if in fact that does take place. What is your take? What kind of an impact can it have on emerging market like us and also on the currency space more importantly?

A: If you think back a minute to the days when Greek crisis was brewing and there was a worry that Greece would leave, remember what happened - the Euro didn’t do anything. The Euro remained very strong and whatever the crisis was, it was an internal crisis. Italians moving money to Germany, Spain moving money to Germany, so I think this may be as dramatic. I would be surprised it is uncertain to people now the idea seems scary but I think the real impact is going to be longer-term.

Nigel: Are you assuming that Britain could exit?

A: I personally think they won't. I don’t think you can take the polls at this value, we just don’t know. I think at the end of the day Britain will decide to stay but if they do leave, everything has to be renegotiated, they will be more uncertain but the fact is that the world doesn’t change. I think right now, the unknown is more worrisome than the reality would be.



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First Published on Jun 16, 2016 08:21 am
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