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Fed Could Surprise Markets With Premature Rate Hike In 2015 - Blackstone
By Sarah Benali of Kitco NewsTuesday February 3, 2014 11:10 AM
(Kitco News) - Many ‘surprises’ are in store for 2015, some of which, according to one investment banker, could be a premature U.S. Federal Reserve rate hike, and an unsuccessful easing program in Europe.
On Monday, Byron Wien, vice chairman of Blackstone Advisory Partners, the largest alternative assets investment firm with about $290 billion under management, shared his list of “Ten Surprises” for 2015 - a list he releases annually and has done so for the past thirteen years.
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| Byron Wien, Vice Chairman of Blackstone
Advisory Partners |
“Investors are broadly in agreement that the first increase in short-term interest rates will occur around mid-year or later, but I believe we will see the Fed act sooner than that, probably in the first quarter,” he said.
“Although inflation is not currently a problem, the increase in rates is likely to be small and more an indication of a change in policy focus than a vigorous attempt to slow down an overheating economy,” he added. “I believe the dollar will not appreciate much more against the euro and the yen because goods from Europe and Japan are sufficiently competitive at present levels.”
One interesting point Wien brought up is that he doesn’t expect an impromptu rate hike will have an effect on longer term interest rates, and explained that he expects a premature move by the Fed could have negative effects on U.S. equity markets.
“There is so much liquidity throughout the world, seeking some level of safe return, that I don’t expect much of a rise in long-term interest rates,” he said. “One negative effect of this move is the possibility that it may set off a short-term correction in the equity market.”
However, Wien said that despite this slight correction in stocks, one of the ‘surprises’ could be a successful year for U.S. equities overall this year.
Looking to Europe, Wien said he expects the European Central Bank’s (ECB) stimulus package to have little impact on the region’s struggling economy.
“[ECB] chief Mario Draghi has been talking about implementing quantitative easing for some time and now he is finally going to do it. The surprise is that it has little impact and Europe remains on the brink of recession,” he said.
“I believe that the slowdown in Germany, resulting partly from diminished Russian trade, will have an impact on the rest of Europe and that the European stock market will be down in 2015,” he added.
Finally, looking at oil prices, Wien said there may be an unforeseen buying opportunity in energy securities.
“I believe the sharp decline in oil prices has excessively upset the high yield market. Energy securities account for almost 20% of high yield and their decline has had an impact on everything in this asset class, creating a buying opportunity,” he explained.
Other ‘surprises’ that made Wien’s list included more cases of cyber-attacks, low growth in China, and the potential for Republicans to make a comeback in 2016.
By Sarah Benali of Kitco News sbenali@kitco.com
Follow me on Twitter @SdBenali
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