Paul Meggyesi, Vice President of global currency and commodity at JP Morgan, says that the Fed may raise rates one more time in December.
He feels that there is potential for energy prices to spike up further. According to him, crude is likely to consolidate at around $70 per barrel.
Excerpts from CNBC-TV18's exclusive interview with Paul Meggyesi:
How have you read the recent set of economic data, which has come out since the Fed met last time?
It was certainly the data we believed has validated the Fed's decision to take a pause in the tightening process. The inflation numbers have been a little lower than expected.
So to that extent it does seem that the Fed was right to take a pause. The growth numbers, the housing market data does confirm that a slowdown is underway. So with a little less inflation and little less growth, the Fed is right, at the moment, to retire to the sidelines and see how the economy pans out.
On a scale of ten, how would you rate the chances of this being the last rate hike till the cycle turns again for a dip?
We disagree with the markets. The market is suggesting that the next movement from the Fed would be a rate cut. We so are taken to believe that the next hike may be still higher.
The Fed is out of the game, but maybe only for the next 2-3 months. So with the economy remaining reasonably okay, we think that the Fed will have sufficient reason to come back in and to recommend tightening at the December meeting. So for now the Fed wants to hold, but we still think they have a little more work to do to really ensure that the inflation process isn't going to deteriorate.
So you wouldn't say
Globally since the growth remains robust, inflation in many countries is picking up. Some of the anti-inflation benefits of globalization in the last couple of years are beginning to fade. So to that extent, Central Banks globally have more to do. And that applies to the Fed, that applies to the European Central Bank and to many of the Central Banks in Asia.
How have you read the cool down in crude and what do you expect for the next few months. Has that market seen its highs?
That is very hard to say. The next month, September, is the peak month for Hurricanes. So there is still potential for energy prices to spike higher. Excluding that event of risk, the energy market has reached a bit of a plateau for now. So I think the broad outlook is for consolidation around the $70/barrel mark, with a possibility that we might see new highs, should there be a particularly disruptive hurricane through autumn.
How are you feeling about the base metals like aluminium, copper and steel now?
From a macro perspective, our sense is that so long as global growth remains robust, I don't think we should get too carried away with the impact of the softer US economy at the moment.
What matters more are the global trends and in particular trends in the more intensive commodity consumers such as China, growth remains reasonably okay. So for now the outlook for metals market, and commodity markets in general, remains pretty supportive.
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