© David Sloan
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The Federal Reserve finally decided the economy was strong enough to handle the first increase in interest rates in nine years, but is the US economy really on the solid ground? What is your thought on the matter? Was the hike justified enough?
To my mind, the US economy is on pretty solid ground at the moment. There certainly are risks, particularly from the external side, while the export picture does not look very bright. However, domestic demand looks quite firm, incomes are starting to rise: with low inflation the real income is looking quite decent. Moreover, job growth is stable and consumers are ready to spend, which in my opinion will continue to drive US growth in 2016.
Analysts all over the world expect the growth to be gradually moderate. To your mind, how much the US economy could grow next year?
We believe the economy can grow to pace of around 2.5% in 2016 and that should be enough to keep the unemployment rate continuing to trend lower.
The Fed is planning to raise rates four times in the following year. How many rate hikes do you expect?
I think the risk is for a little less rather than more rate hikes next year. Our own forecast is for three increases in interest rates in 2016. As long as the economy is solid and unemployment is falling, I think the Fed will broadly keep on the trajectory they have outlined.
However, just a mild disappointment in one quarter or some turbulence in financial markets could definitely be enough to see them take pause in at least one quarter next year. Still, the general trajectory is higher rates and we are confident that we will see that through the year.
Every major central bank that has lifted interest rates since the financial crisis has eventually had to beat an embarrassing retreat. In your opinion, will the Fed have to retreat?
You can never rule that out; however, I think that there will not be a retreat in 2016, obviously. The economy does seem to have potential to see continued growth. The wages do seem to be picking up; thus, our opinion is that the Fed has done the right thing and they have not moved prematurely like some other central banks did.
What performance do you expect from the US Dollar versus its major counterparts in the Q1 of 2016?
The Dollar's prospects look fairly bright given the divergence in interest rates that is taking place. As concerns forecasts for the Dollar by the end of Q1, we would see the EUR/USD at 0.98 and USD/JPY at 1.30. All in all, there is a stronger Dollar in our forecasts for the end of the first quarter next year.