by Chris Becker
We’ve had the IMF, the World Bank and others all suggest, nay – pray – that the Fed doesn’t raise interest rates (and we’re talking 0.25% at most….) next week, in fear the timing of the rise might push market volatiltiy over the edge and send emerging market capital flight into a deadly tailspin.
But from the investment house that coined the notion that “Australia is“a credit bubble built on a commodity market built on an even bigger Chinese credit bubble”, SocGen’s Albert Edwards takes a different view. Interestingly, because he’s a confirmed bear. Here’s from his recent missive to clients:
The clamour for the Fed not to enact the long-awaited 1⁄4% rate hike next week is growing by the day.
Misgivings come not just from reputable mainstream commentators, but now also the World Bank has repeated the IMF’s recent words of caution in advising delay. What a load of nonsense!
[E]ven those like me who see a deflationary bust awaiting think the Fed should hike next week — because the longer you leave it, the bigger the financial market excesses become, and the bigger the risk of financial dislocation and global recession ensuing.
Have we learned nothing from the 2008 Great Recession? Just get on with it!
He has a point, although Mohammed El-Erian and others may disagree. We can rely on history as a guide to how willing monetary authorities are to accept short term pain for long term gain. Look at Australia – 24 years without a recession, but it has potentially gamed a huge one because all along the way it would not accept short term pain for longer term reforms.
My take is we won’t see a hike next month or probably all year. The Christmas orgy must be fed by constant optimism and confidence, and then in the New Year, which confidence imbibed, a rise will come. Or not. Any hiccups or air pockets as Ray Dalio calls them along the way, and the Fed will keep the holster full.