Hamilton Crawford: Further Fed Hikes Far From Certain

Shanghai, China, June 14, 2017 (Newswire.com) - Hamilton Crawford has written to clients advising them to exercise caution before making investment decisions based on expectations of higher U.S. interest rates. The firm’s latest investment bulletin, sent to clients over the weekend, warns that the U.S. Federal Reserve may be forced to reduce the pace of interest rate increases or to postpone them altogether in the face of weakening economic data emerging from the world’s largest economy.

“We’ve seen a marked deterioration in U.S. economic data over the last two months,” said a Hamilton Crawford researcher. “May’s non-farm payrolls data was particularly disappointing,” he added alluding to the 138,000 jobs created last month compared with broad expectations for 185,000.

"Just a month ago, a 25 basis points increase in the Fed Funds rate was virtually a lock with consensus at or around the 90% mark. Fast forward just a few weeks and things seem far less certain."

Researcher, Hamilton Crawford

Elsewhere, lukewarm figures seemed to indicate a softening in the rate of consumer price inflation, one of the Fed’s main reasons for raising interest rates. Weaker industrial production and soft durable goods numbers have added to speculation that the next rate hike may not be delivered in June as expected.

“Just a month ago, a 25 basis points increase in the Fed Funds rate was virtually a lock with consensus at or around the 90% mark. Fast forward just a few weeks and things seem far less certain,” the Hamilton Crawford researcher added.

Analysts are increasingly suggesting that the Fed’s motives for raising rates may have far more to do with building “ammunition” with which to combat the next crisis when it occurs than with cooling an economy that is nowhere near overheating.

“The problem is that rates aren’t likely to get much above 1% before year’s end and, even if the Fed continues to raise rates in 2018 to, say, 1.5%, it’s not going to take very long to exhaust that ammunition if rates have to be cut to boost economic growth. Consequently, we’re advising clients to consider contrarian strategies that work best in environments in which interest rates are declining,” explained the researcher.

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