Fed sitting on sidelines means economy is fine: James Glassman

Some of the fears about the trade war have been dissipated and the Fed might be banking on that, says James E Glassman, MD, JPMorgan Chase. Excerpts from an interview with ETNOW.How do you feel the markets will react to the hawkish signals that are coming from Fedthis time?The Fed had been taking out insurance on reversal fears on economy. The Fed seems to be calling for a pause at some point. The market does not seem to be taking it very badly because the Fed does not have any intention of raising rates until they see inflation drifting up above their 2% target. So there was something for everybody here. The fact is that the US economy is doing very well, unemployment is as low as you get. It does not really matter what growth is. We all have to start to change our minds about what kind of growth is necessary. As long as unemployment stays here, so far as there are no signs of stress. You might worry about trade tensions but there is no real sign that it is affecting the economy that much. That is why they have decided to step to side, sit on the sidelines and just watch and see how things play out. My guess is that will change the tone of the commentary here because when the Fed is in an easing mode and the market is expecting more, people tend to view everything from a negative perspective. We will get a little more balance. If the Fed is going to be sitting on the sidelines, economy is doing fine. There are issues. The industrial sector around the world is struggling but a lot of that is related more to specific things, some of them in the US. The energy sector is very weak and yet consumers globally benefit from that. So we are probably going to watch the Fed move to the sidelines and just be quiet for a while. Is the Fed assuming that the worst of the trade war is behind us?It is not clear. It might be that they think that they have done enough with the three cuts to tamper any risk associated with trade war, but the truth is there is not much evidence yet that this is taking a toll on the US economy. It may be a bit of an issue for China and maybe for Germany. That is hard to tell. I do not think we really know whether they are thinking that maybe this is not as big a deal as they thought, or that they have taken out enough insurance to protect against it. The reason for not talking so much about it is that there are signs of some resolution in US-China trade war. Some of the fears about the trade wars have kind of dissipated. So it might be that is what they are banking on.

from Economic Times https://ift.tt/2ovK3I8