Dominic Konstam isn’t sure about Deutsche Bank AG’s forecast that the Federal Reserve will raise interest rates in September -- and he works there.
Like many of their counterparts throughout the financial world, people inside Deutsche Bank are divided about just when the Fed will move. The bank’s economists, who espouse the official “house” view, say next month. Konstam, the interest- rate strategist, says it may be 2016.
“I always thought the Fed would struggle to raise rates this year,” Konstam said in an interview.
The split highlights the widening gap between those who take their cues from the bond market to gauge the prospects for U.S. growth and those who focus on economic indicators.
With China’s stock meltdown convulsing markets worldwide and commodities stuck near the lowest levels this century, bond traders pared back their inflation expectations as worries about a global slowdown deepen. They see the odds of interest rates rising before year-end at little more than a coin flip.
Policy Survey
Yet to most economists, there’s no need for the Fed to wait as jobs and spending continue to pick up. Three-quarters of those surveyed by Bloomberg in August say the Fed will lift the upper bound of its target rate to 0.5 percent at its Sept. 16-17 meeting. The median forecast sees four more increases over the next year.
While the survey was taken before markets went haywire, it was backed by data on Thursday, which showed the U.S. economy expanded more last quarter than previously reported.
An increase in borrowing costs would mark the end of the Fed’s near-zero rate policy, which has been in place since the financial crisis erupted in 2008.
House Divided