This video interview is owned by Channel News Asia, and the original source can be found at https://youtu.be/U_Im05ClsN0
The United States Federal Reserve’s plan to ease its pace of interest rate hikes as soon as December would bring some relief for markets concerned about the central bank overtightening too quickly, Mr. Tony Nash, founder and chief executive of data analytics firm Complete Intelligence, told CNA’s Asia First.
CNA: Federal Reserve chair Jerome Powell has signaled policymakers could slow interest rate increases starting this month. That sets the stage for a possible to downshift to a 50bps rate hike when Fed officials gather again in two weeks.
Powell: Monetary policy affects the economy and inflation with uncertain lags. And the full effects of our rapid tightening so far are yet to be felt.
Thus it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting.
CNA: But it isn’t quite a dovish turn. The U.S Central Bank Chief also stressed that they have a long way to go in restoring price stability despite some promising developments.
Mr. Powell warns against reading too much into one month of inflation data saying that the FED has yet to see clear progress on that front. In order to gain control of inflation, the Fed chair says the American labor market also has to loosen up to reduce upward pressure on wages. Job gains in the country remain high at nearly 300,000 positions per month and borrowing costs are likely to remain restrictive for some time to tamp down rapid price surges.
This is where U.S interest rates stand after an unprecedented series of four 75 bps rate hikes. Policymakers projected earlier that this could go as high as 4.6 percent but Powell says they will likely need to keep lifting rates more and go beyond that level until the inflation fight is done.
The less hawkish tone from Powell Boyd U.S market stow and the S&P500 erased losses it searched three percent. The Dow gained two percent while the NASDAQ jumped more than 4.4 percent. the 10-year treasury yield also dipped as Bond Traders dialed back their expectations on how high the Fed may push interest rates while the U.S dollar retreated.
Tony Nash is founder and CEO of Complete Intelligence joining us from Houston, Texas for some analysis. Now Tony, just looking at Powell’s comments, the first differs in some way with what the Fed and its officials have been telling us earlier in the year and how we’ll get there fast to try to reach the terminal rate. But now it’s signaling that it will get there slower. What is this going to mean for businesses and consumers in the US?
Tony: I think what it means is we’re going to get to the same destination. It’s just going to take a little bit more time to get there. So the Fed has seen jobs turn around they’ve seen jobs aren’t necessarily slowing but the rate of rise in open jobs is slowing. We’ve seen mortgage rates go up. We’ve seen the rate of inflation rise slowly.
So the Fed is seeing some things that they want and they’re worried about over-tightening too quickly. Because what we’ve seen so far is really just interest rate rises. They really haven’t even started quantitative tightening yet. I mean they’ve done a little bit maybe a couple hundred billion dollars. But they have nine trillion dollars on their books give or take.
They haven’t even started QT yet. And they’re starting to see inflation and some of these pressures on markets at least slowed down a little bit. So I think they’re saying “hey guys we’re still going to get to a terminal rate of five percent or five and a half percent but we’re going gonna slow it down from here unless we see things accelerate again.”
CNA: When do you think we will actually see that five to five and a half percent?
Tony: You’ll see it in the first quarter. You know if we do say 50bps in December and maybe another 50 in January, we’ll see some 25bps hikes after that but I think what markets the cyber leaf that markets are giving right now is just saying. Okay, we’re not at 100 or 75 in December.
I think that’s a big size that you saw today and you know. It raising at 75bps per meeting just put some real planning challenges in front of operators people, who run companies. So if they slow down that pace and people know we’re still going to get to that 5 to 5.5%, it allows people to plan a little bit more thoughtfully, and a little bit more intelligently.
I think this does relieve some people of the worries of the Fed over-tightening too quickly and it also relieves worries that the Fed is only relying on monetary policy. They’re not relying on interest rates I’m sorry and they’re not relying on quantitative tightening. so the Federal balanced approach sometime in Q1.
CNA: Okay, you also mentioned before in our past conversations, the concern that the market has been having for this week especially since it’s China’s lockdowns and you see these restrictions ending gradually. What is that going to mean for Energy prices and inflation?
We see Energy prices say now they’re what high 70s low 80s somewhere in that range. We do see a rise of say crude oil prices by about 30 percent once China fully opens. We could easily be 110-120 a barrel once China fully opens. And so there will be pressure on global energy markets once China opens. Other commodity prices will see the same because we’re just not seeing the level of consumption in China that we expect.
What we also expect is for Equity markets to turn away from the U.S. and more toward Asia. So the US has attracted a lot of investment over the past year partly because of the strong dollar partly because of kind of a risk-off mentality consolidating in U.S markets. As China opens and there becomes more activity in Asia than we would expect, some of that money to draw down out of the US and go back to Asia.
CNA: Can you look at the jobs market in the US even as we expect this potential pivot towards Asia for stock market investors? The jobs market and the picture on wages there because the ADP data shows that there seems to be a cooling in demand for labor how soon do you think we can see a broadening out to the broader jobs market?
Tony: You would have broader cooling of demand in the jobs market I think, that’s definitely hidden tech. You’ve seen a lot of layoffs in technology over the past say three weeks. And that will cascade out. I don’t necessarily see think that you’ll see that in places like energy, but you will see that in maybe finance, some aspects of financial services. You’ve seen some of that and say mortgage brokers and this sort of thing so you’ll see that in some aspects of financial services. Some aspects of say manufacturing at the edges. but I do think there’s a lot of growth in U.S manufacturing as this reassuring narrative really takes uh gets momentum in North America. And so even though we may shed some manufacturing jobs in one area I think we’ll see growth in manufacturing jobs in other areas.
CNA: Okay, Tony. We’ll leave it there for today. Thanks for sharing your analysis with us. Tony Nash is founder and CEO of Complete Intelligence.