The US Federal Reserve is “confused” about when to raise interest rates as concerns about potential global shocks continue to spook policymakers, JP Morgan Asset Management chief market strategist Stephanie Flanders says.
Speaking at the National Association of Pension Funds conference in Manchester yesterday, Flanders said emerging market and developed market economies are “diverging” as momentum in the developed world is mirrored by structural problems in China and the surrounding regions.
She said: “As a result, growth and inflation are going to be lower than we hoped again. And the Fed is confused.
“We learnt that certainly in the way they dealt with the September meeting and the decision not to raise rates then. That sent a lot of conflicting signals about whether they were still on track or whether the date of the rate rise in the US – and possibly the UK – would be put off forever.
“Central bankers should have higher expectations about what is going to happen in the developed world. I don’t think we are going to be derailed by what is happening in China and other places. We can carry on having a recovery just as we did in the late 90s.”
She added: “The Fed are so transparent they communicated their confusion quite effectively in September.”
Flanders said the key consideration for investors when a rate rise does arrive is not when, but how fast the US and the UK raise borrowing costs from their current record lows.
She also warned of the risk of “political wildcards” in Europe as mainstream parties are widely rejected, potentially opening the door to more radical, anti-austerity governments across the continent.
She added: “There is a political wildcard now everywhere, even as the economics gets a bit more boring.”
Her comments come as divisions emerge at the top of the Fed about when to raise interest rates.
The Financial Times reports two Fed board members have signalled this week they are against a near-term increase in rates, despite chair Janet Yellen pushing to withdraw monetary stimulus.
BlackRock chief executive Larry Fink said yesterday that “mixed messages” from the central bank were “inflaming markets”.