US best bet in bad neighbourhood: Heritage Capital

Paul Schatz President & CIO Heritage Capital strongly believes there is yet no case for the Fed to hike rates because global growth is still weak, Europe is teetering on recession and deflation, and Asia too is weak.Below is the transcript of Paul Schatz's interview with CNBC-TV18's Surabhi Upadhyay.Q: So we are seeing the markets hold up quite nicely ahead of that statement. What are you watching out for? A: It is pretty much expected that the Fed is not going to make any move today and I would argue that it is unlike it will make a move in September either. You have got a bifurcation of data and events around the world where the hawks and the doves on the Federal Open Market Committee (FOMC). Each group has an argument to make where the hawks will say that employment data is much better and therefore rates should go up because unemployment rate has fallen so much. Although growth has not been anywhere near robust and we are only growing at still sub 2 percent and the doves will say initially that look what is going on in Europe. We just survived the Greece debacle and China is a disaster we are living through right now. So, I would be shocked if the Fed did anything on rates today and I will be almost shocked if they do anything on rates in September. The US indices are having a small bounce, it is two days already but I don't think that the ultimate lows are in. The bottom lies in front of us next month.

Q: Would you expect the commentary, the language to get a little more strict perhaps, slightly more hawkish because what we got from Janet Yellen last time around was a fairly dovish statement saying that Fed will continue to be data dependent?

A: I think Stanley Fischer is the one that we somewhat have to worry about if you are a dove. I don't think the Fed should raise rates I have said that for the last six years and I don't think they will raise rates at all this year.

I think Staley Fischer is really the chief hawk behind the scene pushing for a Fed rate hike. I think they are in a tough spot, maybe she gets a touch more hawkish but I think it is a mistake. Global growth is weakening, Asia is awful. So, may be the US remains the best house in a bad neighbourhood but that is certainly no reason to raise rates. Europe is teetering on recession and deflation. So, the argument to raise rates to me don't hold water. I don't think you raise rates just so that you have some dry power when you have to lower them again, I think that is kind of idiotic and absurd.