Federal Reserve officials signaled they are set to raise interest rates at their meeting in June, but sent no clear message on whether they’d hike one or two more times this year following that move.
US central bankers said “it would likely soon be appropriate” to increase the benchmark policy rate, according to a record of their May 1-2 meeting released Wednesday, confirming investor expectations for a move next month. Beyond that, officials “expressed a range of views on the amount of further policy firming that would likely be required.”
“It seems like they couldn’t agree on anything beyond the next meeting,” said Stephen Stanley, chief economist at Amherst Pierpont Securities in New York. “They’re really, truly going to be taking this one meeting at a time.”
Inflation rose at the committee’s targeted pace of a 2 per cent annual rate in March, yet officials were cautious on whether that was sustainable given that prices had been mostly below that goal for the past six years.
“It was noted that it was premature to conclude that inflation would remain at levels around 2 per cent, especially after several years in which inflation had persistently run below the committee’s 2 per cent objective,” the minutes said.
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Read more:
[ Emerging markets central banks under pressure to hike rates ]
[ US Fed keeps interest rates unchanged as inflation remains close to target ]
[ Funding pressure eases for GCC banks with rising oil prices, Moody's says ]
[ UAE Central Bank raises interest rates by 25 basis points ]
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The commentary was somewhat unusual given the data in hand: unemployment at the lowest level in 17 years, wages gradually moving higher and the economic expansion apparently on a firm footing.
“There was very little concern about overheating and inflation overshooting too much,” said Julia Coronado, president of Macropolicy Perspectives in New York. “There was more concern that the recent progress cannot be sustained.”
March forecasts by the Federal Open Market Committee showed the committee split between three and four hikes this year, excluding three outliers. That outlook will be updated at the FOMC’s June 12-13 meeting, after which Chairman Jerome Powell holds a press conference.
As noted in their May 2 statement, which inserted a second reference to their “symmetric” inflation target, the committee said it wouldn’t be concerned if inflation overshot the target.
A temporary period of inflation “modestly above 2 per cent would be consistent with the committee’s symmetric inflation objective and could be helpful in anchoring longer-run inflation expectations,” the minutes said.
“They could have sounded a lot more optimistic about the economy, and confirmed expectations for four increases this year, but they didn’t do that,” said Michael Hanson, chief US macro strategist at TD Securities in New York. “This is a committee that feels like it has been head-faked one too many times on inflation.”
Since the May meeting, the dollar has continued to strengthen, oil prices are higher, and 30-year mortgage rates have also moved up. Tightening US financial conditions have been felt sharply in some emerging markets, with Argentine and Turkish currencies retreating sharply.
Fed officials have little foresight into what exiting from post-crisis, ultra-easy monetary policy will mean for the US economy -- let alone the rest of the world -- and that may be one reason why they are reluctant to look beyond the next meeting.
“The closer you get to a normal monetary policy, the less agreement you’re going to have about continuing to slog along,” Stanley said. “I’m a little bit surprised that that discussion seems to be drawing so much disagreement already.”
How to keep control of your emotions
If your investment decisions are being dictated by emotions such as fear, greed, hope, frustration and boredom, it is time for a rethink, Chris Beauchamp, chief market analyst at online trading platform IG, says.
Greed
Greedy investors trade beyond their means, open more positions than usual or hold on to positions too long to chase an even greater gain. “All too often, they incur a heavy loss and may even wipe out the profit already made.
Tip: Ignore the short-term hype, noise and froth and invest for the long-term plan, based on sound fundamentals.
Fear
The risk of making a loss can cloud decision-making. “This can cause you to close out a position too early, or miss out on a profit by being too afraid to open a trade,” he says.
Tip: Start with a plan, and stick to it. For added security, consider placing stops to reduce any losses and limits to lock in profits.
Hope
While all traders need hope to start trading, excessive optimism can backfire. Too many traders hold on to a losing trade because they believe that it will reverse its trend and become profitable.
Tip: Set realistic goals. Be happy with what you have earned, rather than frustrated by what you could have earned.
Frustration
Traders can get annoyed when the markets have behaved in unexpected ways and generates losses or fails to deliver anticipated gains.
Tip: Accept in advance that asset price movements are completely unpredictable and you will suffer losses at some point. These can be managed, say, by attaching stops and limits to your trades.
Boredom
Too many investors buy and sell because they want something to do. They are trading as entertainment, rather than in the hope of making money. As well as making bad decisions, the extra dealing charges eat into returns.
Tip: Open an online demo account and get your thrills without risking real money.
If you go...
Fly from Dubai or Abu Dhabi to Chiang Mai in Thailand, via Bangkok, before taking a five-hour bus ride across the Laos border to Huay Xai. The land border crossing at Huay Xai is a well-trodden route, meaning entry is swift, though travellers should be aware of visa requirements for both countries.
Flights from Dubai start at Dh4,000 return with Emirates, while Etihad flights from Abu Dhabi start at Dh2,000. Local buses can be booked in Chiang Mai from around Dh50
ROUTE TO TITLE
Round 1: Beat Leolia Jeanjean 6-1, 6-2
Round 2: Beat Naomi Osaka 7-6, 1-6, 7-5
Round 3: Beat Marie Bouzkova 6-4, 6-2
Round 4: Beat Anastasia Potapova 6-0, 6-0
Quarter-final: Beat Marketa Vondrousova 6-0, 6-2
Semi-final: Beat Coco Gauff 6-2, 6-4
Final: Beat Jasmine Paolini 6-2, 6-2
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
