The US economy is weaker than we thought in early 2015

Perpetual Equity Investment Company

Perpetual Asset Management (Australia)

I think the message out of the Fed is that the US economy is weaker than we thought in early 2015, but modest rate rises are still appropriate by the end of this year. After contracting in the March quarter, the economy is now forecast to grow a modest +1.8% to +2.0% this year with incoming data to determine if its two rate hikes this year or only one. In coming to any decision, the US Fed has two benchmarks; labour market improvement which is clearly evident and inflation trending towards its target which seems to be emerging. However, it has to be remembered that numerous central banks have tightened policy since the GFC in expectation that their economies could handle it, only to find out that it couldn’t with rate hikes having to be subsequently reversed. I maintain my view that even if the US Fed is the first bank to maintain a higher official interest rate, the peak of the US Fed funds rate this cycle will be 2%, and we may not reach the peak until end-2017.


Perpetual Equity Investment Company
Perpetual Asset Management (Australia)

The Perpetual Equity Investment Company Limited is an ASX listed investment company offering investors access to a portfolio of predominantly high quality Australian and global listed securities, selected by Perpetual Investment Management Limited.

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