The risk of policy error
Abi Oladimeji, head of investment strategy at Thomas Miller Investment is also of the view that the fundamental case for a rate hike in the US is weak, saying that while many commentators point to strong headline data on the labour market as a sign that the time may be right, “the devil is in the detail”.
And, while he admits that the Fed’s decision to raise rates may be based on reasons beyond economic fundamentals, it needs to tread carefully.
“The issue is not whether the US economy can survive a small hike. What should give the Fed pause is the asymmetry of the risks – at this point in time, the threat posed by unanticipated inflation pales in comparison to the danger of stunting growth.
“To begin raising interest rates at a time when key leading economic indicators point to diminishing growth momentum raises the risk of policy errors, and may lead to a U-turn further down the road,” he adds.
Gutteridge is also concerned about this adding that if the US does embark on a normalisation cycle: “With other central banks moving in the other direction, I think that is a very powerful tailwind for the dollar which will bring about deflationary expectations in the US and weigh on profits. And in the fullness of time may well be seen as a policy error.”
