Fed To Maintain Status Quo, Says Seth Freeman
The Federal Reserve is likely keep interest rates on hold at the end of its two-day policy meeting, Seth Freeman, senior managing director of, EM Capital Management told BloombergQuint in an interview.
The central bank will unveil the timing of its balance sheet unwind in September and wait until December to raise interest rates again, according to a Bloomberg survey of 41 economists.
Below is an edited transcript of Freeman’s interview with BloombergQuint
What do you think Federal Reserve will do? Most economists polled by Bloomberg expect a status quo.
I think you are on target in terms of the consensus. We really had quite a shift in the sentiment in terms of Trump policy-based revision, that is, in terms of lower expectations and no real shift in the timetable for interest rate hikes.
How concerned are you about the lower-than-expected inflation that we have seen in the past and therefore, the shift from fiscal policy to monetary policy? Do you expect that there could be the outlier expectation, or chance of a pause this year for the rate hikes at all?
There is possibility with such a kind of easing or rather just the liquidation in the Fed’s inflation portfolio, coupled with reduction in quantitative easing in Europe. We have seen conditions in markets such as Germany improving steadily. The European Central Bank (ECB) is expected to begin tightening, which may cause some increase in rates, irrespective of the Fed action.
The big question on everybody in India is: what would this mean for foreign fund inflows in emerging markets if the Fed would stay on hold during the course of the year, or maybe go through even one rate hike? Do you expect that it would impact any fund flows in emerging markets like India?
I think it will cause investors to think twice about increase in fund flows because the decision to invest in emerging markets like India is partly based on interest rate returns and cost of capital. So, if rates go up, I would see a slowdown in foreign money pouring into emerging markets. That said, countries like India that have positive macroeconomic indicators should still attract money.
Before we wrap up, a word on the commodities. Crude went up as U.S. stockpiles seen plunging. Copper and other base metals rallied on some other reasons, which included a weaker dollar.
It’s kind of odd, we are talking about inflation being muted, yet we are seeing commodity prices going up. It probably reflects the summer time [low demand] and lower volumes. So, even small surges can really push the markets. Of course, there is some concern about shale oil prices in U.S.
I think it generally reflects seasonality more than any change in demand or supply.