DEBATE: Was the Fed right to keep rates on hold?
YES – Nick Ford is fund manager of the Miton US Opportunities Fund
Fed chair Janet Yellen deserves credit for her role in engineering the current period of steady and sustained economic growth. She has been right to take a very measured and cautious approach to raising interest rates, and because monetary policy has not been tightened too quickly, we now have a near ideal situation in the US where corporate earnings are rising, inflation is at satisfactory levels, and consumers feel confident about the future. Recent economic data has been encouraging but certainly not strong enough to suggest a Federal Reserve that is “behind the curve”. Industrial production, housing starts, manufacturing and employment data have been bright spots, but there have been slight disappointments regarding very low growth in average hourly earnings, a flat Consumer Prices Index reading and downtick in retail sales. Yellen will be looking for signs that the economy might be close to overheating, and the modest growth in average hourly earnings will have been a key factor in her correct decision to refrain from tightening.
NO – Will Hobbs, head of investment Strategy at Barclays Wealth & Investments
It is time for monetary policy to begin to reflect the fact that the global private sector’s attitude to risk seems finally to have normalised after a long and understandable hiatus. The bond market’s current assessment of the likely path of interest rates is too meek. The US election prompted many in the market to dramatically reassess their inflation expectations. Large chunks of President Trump’s legislative agenda were deemed inflationary. Since then, a lull in inflation combined with this US administration’s agenda running into the congressional sludge has prompted a rethink. Even moderate inflationary pressure is likely sufficient to allow the various central banks in the developed world to slowly but surely remove their patients from the monetary emergency room. The sooner we move to a more normal monetary environment, the less likely that this replenished private sector risk appetite will spill over into the excesses that usually presage the most vicious recessions.