Point72 Chief Economist Dean Maki Talks Rate Hike

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Bloomberg Briefs recently sat down for a chat with Dean Maki, who has a PhD in economics from Stanford and is currently the managing director and chief economist at Point72 Asset Management. In the interview, Maki discussed the increasing possibility of a Fed rate hike, the evolving economic conditions in China and why U.S. unemployment could drop as low as 4% next year.

Dean Maki on interest rates

When asked about the Fed and the split opinion about a rate hike this week, Maki replied: “I think the most similar time was way back in 2003. In June 2003, the Fed was thinking of cutting rates. There was a big debate about 25 or 50 basis points. Wall Street was evenly split. This is very similar where it’s really unclear even a week before the meeting which way the Committee was going to go.”

He continued to note: “I think if the meeting were held today, the Fed probably wouldn’t go. But the problem with having a strong stance right now is that the Fed has made markets a big part of the decision so that if markets rally significantly over the next week, that may induce the Fed to go ahead and raise rates.”

Export-focused firms facing headwinds

Maki argues there is a growing divergence in U.S. firms among those that are focused on the domestic market, and those that are export focused. He notes: “Those who are focused on domestic consumption, domestic housing — those companies are doing quite well. Companies that are trying to export, especially to Asia, are running into more headwinds. That is a big split in the economy that, to me, looks like it’s going to continue for some time.”

Maki’s best call on unemployment rates

When he was asked what was his best call on the economy in the last year, he pointed to unemployment. “I think the thing that I’ve been able to call was that the unemployment rate would fall much faster than others believed. I think that’s going to keep happening. I expect, by the end of next year, the unemployment rate will be at 4%.”

U.S. in for secular slower growth

When asked, “Do you buy the idea there will be a new dampened American spirit?”, Maki replied:

I think that potential growth in the U.S. is much lower than it has been in the past. That’s because of demographics, the population getting older, the labor supply growing less. It’s also because of productivity growth being slower. Therefore, it does make sense that the terminal rate is going to be lower than in the past. I think that argument gets exaggerated though. Some people are talking about a 2 percent terminal rate. I don’t think that’s accurate. My view is it’s more in the 3.5%, 3.75%.”

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