US: Slowing growth, overcapacity, and high debt outside impacting conditions - Rabobank

Michael Every, Head of Financial Markets Research at Rabobank, notes that yesterday the Fed’s Kaplan underlined that slowing growth, overcapacity, and high debt outside the US might be impacting conditions within the US.

Key Quotes

“Building on the idea already mentioned this week that such factors, along with demographics and lower productivity, make getting the neutral Fed Funds rate right “more challenging”. That realization perhaps deserves a slow handclap but at least it’s more realistic than the ‘four hikes this year’ rhetoric from January.

Elsewhere, Lockhart said “Asset valuations are something we have to continue to monitor and watch,” and that they are “relatively buoyant” now. Does that suggest policy tightening ahead or a pat on the back? Cynics might argue that the Fed always watches asset valuations, and as with the BoJ, policy has been aimed at pushing them higher, not stalling them.

That’s certainly something being said publicly by at least one of the US presidential candidates – the one President Obama has just called unfit to be president. Indeed, Donald Trump, after claiming that the November election may be “rigged”, has stated that the Fed’s monetary policy has blown asset bubbles, it’s now time to sell stocks, and there are “very scary scenarios” for investors ahead: that’s ‘more challenging’ if one uses the second word as either an adjective or as a gerund.”