Fed’s Potential Interest Rate Hike ‘Economically Meaningless Increment’: UMD Expert Kyle

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Albert “Pete” Kyle, finance professor at the University of Maryland’s Robert H. Smith School of Business, is available to expand on his following comments related to the Fed’s looming decision on raising interest rates:

I think that it is likely the increase will not happen. If it does happen, it is likely to be a very tiny, economically meaningless increment.

“(Fed chairwoman) Janet Yellen’s main goal is to decrease the unemployment rate and increase labor force participation.  She does not want to stimulate bubbles in either stock market prices or bond spreads. Talking about increasing interest rates, as opposed to actually doing it, is likely to dampen asset prices slightly while not dampening employment growth.

“While both the U.S. and European countries are likely to keep their interest rates low, watch for some real contagion related to emerging markets debt.  As weakness in China spills over into the debt markets for Brazil, Turkey, South Africa, Russia, India, and other countries, there will be increased speculation concerning which emerging market economy will default next.  Emerging markets will be moving towards high inflation while the U.S., Europe, and Japan continue to fight deflationary forces.”

Kyle is at [email protected] or 301-405-9684. More of his ‘Fed-Interest rate’ commentary is here  … Additional, related comments from UMD-Smith finance expert William Longbrake are here.

Kyle expertise summary: Brady Commission member after the stock market crash of 1987; consultant to SEC (Office of Inspector General), CFTC and Department of Justice; economic advisor to NASDAQ, FINRA and CFTC (technology)… Research focuses on market microstructure, including informed speculative trading, market manipulation, price volatility, information content of market prices, market liquidity and contagion.

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