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Analysts split on Fed rate decision

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Economists from two financial houses predict a rise in US interest rates.

Lehman Brothers' global chief economist and BT Fund Management'scurrency manager disagree on the size of the increase.

In separate speeches, John Llewellyn of Lehman Brothers and Dirk Morris of BT Funds Management gave their assessments of the US economy and interest rates.

Mr Morris said: 'I anticipate 25 basis points in September. By November they will realise they should have done 50 basis points, then they will do another 50 points. Then they will have put it up too much, as they often do.

'They have been rather slow in the past year, so they will likely end up over shooting.' Mr Llewellyn believed a 25 basis point rise would be enough to balance the economy. He said: 'To trim the US economy down to a more sustainable growth rate, the Federal Reserve is likely to raise short rates soon, albeit modestly.' He expected the increase, coupled with the rise in bond yields in the first half of the year, would be enough to slow the economy to a more sustainable level and take the edge off inflation.

'This is not just a boom-bust recovery. This is a steady recovery. Alan Greenspan, chairman of the Federal Reserve, has very high credibility. I must give praise where it is due. This has been a remarkably far-sighted, credible Federal Reserve,' he said.

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