Neil MacKinnon, Chief Macro Strategist for VTB Capital, joined Zak Mir and Mike Ingram on the Tip TV Finance Show to discuss the importance of non-farm payrolls to the Federal Reserve’s chances of a rate hike, and the mind-set of the Fed in our current economic climate.
Non-Farm Payroll figure is important for a US hike
MacKinnon highlighted that the NFP number is important, and although the fact that whether the rate hike is data dependent or not is debatable due to the upcoming 2016 presidential election in the US, a number below 150000 may hold off an interest rate hike from the Fed. He continued the Federal Reserve have lowered the bar for a potential hike after beginning to understand they may have misjudged September following criticism over their communication and not raising interest rates. He concluded that Friday’s jobs report is crucial for a potential December rate hike, with jobs growth being slower after the China slowdown which has impacted US industrial exports and thus jobs.
Interest rates too low for too long
MacKinnon identified that the Fed have been ultra-cautious and ultra-dovish, and are afraid of reversing a decision which they may be criticised for. He added that they have left interest rates too low for too long a period of time, and monetary policy which was designed for a crisis is no longer the solution, and now part of the problem.
Inflation doesn’t increase with lower interest rates
MacKinnon concluded there is no correlation between lowering interest rates and inflation rising, as powerful deflationary forces are stemming from the global economy and especially China.
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