Societe Generale Asks: 'Who Do You Believe, Steve Or The Fed?'
In a note released this week, Societe Generale analyst Albert Edwards addressed the potential U.S. interest rate hike that could be on the way in 2015.
The report looked at the generally positive language that the Fed has used recently to describe U.S. economic growth and compared that positive stance to the contrarian view of Mizuho’s Steve Ricchiuto.
The Fed’s Rhetoric
In a recent interview, Fed Governor John Williams made it clear that the Fed’s focus is on improving employment numbers rather than weak inflation. The market seems to interpret this type of talk to mean that a rate hike sometime this year is imminent.
Williams himself even warned of the consequences of waiting too long to raise rates, explaining that if, “you wait so long that you get behind the curve and then you have to raise rates really rapidly, that creates a lot of market turmoil and maybe even potential damage to the economic recovery.”
Mizuho’s Chief Economist Steve Ricchiuto recently went on CNBC to voice his discomfort with the idea that the U.S. economy is on stable footing. Ricchiuto argued that the idea that U.S. economic growth is accelerating, as popular as it may be, is in fact untrue.
Ricchiuto pointed out that revised Q4 GDP numbers and negative Q1 GDP, along with sluggish retail numbers and other indicators, suggest that the economy is growing at about the same rate at which it has been growing for the past five years.
“There’s this wrong concept that I keep on hearing about in the financial press about the acceleration in economic growth,” Ricchiuto told CNBC. “It’s not happening!”
Wait And See
The general consensus seems to be that an interest rate hike is on its way sooner rather than later.
Only time will tell whose economic outlook is most reliable: The Federal Reserve’s or Steve’s.
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