© David Sloan
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I think there are benefits from improved education of the poor in terms of supply, although, clearly, they take time to arrive. Increased government revenues obviously have negative effects for taxpayers, but sometimes the benefits can be worth it, particularly if the resulting government spending goes to investment rather than consumption. One problem is that demographics are causing an ever increasing proportion of government spending going on benefits to seniors with the resulting squeeze on investment. I do not think the current tax rates and scheduled benefits to seniors are sustainable without doing damage to necessary investments, including education.
While the US economy decelerated in Q4 2014, expanding at an annualized 2.6 % pace on 5% a year ago, its growth rate was faster than the average. This contrasts sharply with other major economies, including the Euro zone, which has been heading into deflation. However, US Treasury secretary Jack Lew gave voice to broader fears among officials that the rebound in the economy could be curtailed by sluggish demand overseas. Do you share the views of Mr. Lew?
The sluggish demand overseas is certainly a concern, particularly given a stronger greenback, and I expect net exports to contribute negatively to US GDP in 2015. However, I believe it is very unlikely that this will be sufficient to prevent the recovery, maintaining a respectable momentum close to 3.0% in 2015. Although there is uncertainty over the impact of lower oil prices, which are positive for consumers, but they have adverse effects on investment in the energy sector. However, overall the US economy seems to have enough domestic strength to cope with the sluggish global outlook.
The Fed has been laying the ground for a rate increase this year from the current 0% to 0.25% as many economists anticipate. However, not all agree with this measure, e.g. Warren Buffet said it would be "very tough" to lift interest rates because of the stronger USD: "It would have a lot of international repercussions." Do you agree with Mr. Buffet ?
To your mind when the rate increase will take place and is it a necessary move in 2015? I think it looks likely the Federal Reserve will increase interest rates this year, and the US economy should be strong enough to continue growth, even with a modest increase in rates, though such a move could add to difficulties in emerging markets. However, for Europe and Japan a stronger greenback, which higher rates would help ensure, would have a positive impact. Inflation is low enough to indicate the necessity of a Fed rate hike is debatable, yet, if lower unemployment starts to lift wages, a modest move would in my view be prudent.
What other factors will influence the greenback in Q1 of 2015 and what are your forecasts for EUR/USD, GBP/USD and USD/CHF for the same period?
There are many factors that could have a strong impact on the US currency; however, the situation in Europe may be the most important. Talking about the forecasts, in terms of the EUR/USD, we expect to see the pair at 1.1100 levels. The GBP/USD most likely to reach 1.5000 in the Q1 of this year, and finally our forecast is 0.9450 regarding the USD/CHF.