Stock Market

Odds of Fed hike goes up from low to 50-50 till Dec-end: Palmer

All eyes are on the two-day US Fed meet and Bank of Japan meet this week, Wednesday. Market consensus is that Fed is likely to hold its base rates at 0.25 to 0.50 percent.

According to Christopher Palmer, Founder and Chief Investment Officer, Benson Avenue Capital the house has raised the odds of Fed raising rates from extremely low to 50-50 possibility between now till December-end.

He said, most market commentators think if the hike is only around 25 basis points from now till year-end then it is not much to talk about and there might not be much more from Fed in 2017.  So, it could be continuation of low interest rates in the US in foreseeable future, he said.

There are reports that BoJ would announce critical changes in its approach to monetary policy.

According to Palmer, with the quantitative easing not having its intended consequences in Japan and Europe also, and with US set to move on, the BoJ would have to rethink their strategies.

Below is the transcript of Christopher Palmer’s interview to CNBC-TV18’s Surabhi Upadhyay.

Q: It is all about the Fed and the Bank of Japan (BoJ). What are you expecting this week?

A: This week as we have said previously we have raised the odds of the Fed raising rates from extremely low to 50-50 between now and the end of the year.

As many speakers have been saying if it is a 25 basis points raise between now and the end of the year, it is really not very much to talk about.

I think going into 2017 there won’t be much more than that in the way of rate rises as well from the Fed. So, we are looking at a continuation of extraordinarily low interest rates in the US in the foreseeable future.

Q: Would that then explain the slight sense of optimism that we have in a lot of the risk assets today? Also just a quick word on the BoJ because I have been reading a lot of commentary where the BoJ is expected to change its approach towards monetary easing. They might start buying different sort of bonds because what they have done so far has not really helped the yen or inflation or growth in that country.

A: This is just a continuation of what most of the commentary about the great experiment of quantitative easing (QE) and bond purchasing. However it is not really having its intended consequences whether in Japan or in Europe. With the US set to move on I think some of those strategies will need a second look because the US will be moving, even though a very small degree with raising rates. So, that will leave those other central banks far behind in terms of where their currencies might end up. So, risks would be building for BoJ to hang on to that strategy given that it hasn’t worked. However one caveat here is that the political environment in Japan would have to change dramatically for that kind of shift to occur.