HALISTER1: MORE: Fed’s Kashkari Tells Reuters June Rate Move Is ‘Possible’

MORE: Fed’s Kashkari Tells Reuters June Rate Move Is ‘Possible’

(Bloomberg) -- Minneapolis Fed Pres. Neel Kashkari tells Reuters in interview that “it’s possible” Fed will raise rates in June.
  • If data surprises to upside, mkts will have to adjust; number of hikes in 2016 depends on data
  • Current stance of policy is “about right”; raw data indicates Fed should be accommodative
  • Expects ~2% U.S. GDP growth this yr
  • Not clear if recent rise in core inflation is “real”
  • NOTE: Kashkari, a former Pimco executive and Treasury official who oversaw TARP program, joined Minneapolis Fed in Jan.; he succeeded Narayana Kocherlakota
  • NOTE: Kashkari becomes voter on FOMC in 2017
  • NOTE: Earlier, Kashkari Says Current Fed Policy Stance ‘About Right’: Reuters
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Source: BFW (Bloomberg First Word)

People
Neel Kashkari (Federal Reserve Bank of Minneapolis)

Topics
BGOV Finance

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HALISTER1: Fed to Engineer ‘Modest, Sustained’ Inflation Overshoot: BofAML

Fed to Engineer ‘Modest, Sustained’ Inflation Overshoot: BofAML

(Bloomberg) -- Fed will “deliberately engineer a modest, sustained overshoot of its inflation target,” by letting economy “run hot for a while,” BofAML economist Ethan Harris wrote in note Friday.
  • While Fed hasn’t announced such a policy, it’s taking “very high” risk of such overshoot; “in our view, that is observationally equivalent to an intentional overshoot”
  • If inflation does overshoot, Fed would likely hike rates only enough to avoid “a big overshooting”
    • Rather than try to actively push inflation down, they would wait for inevitable recession “to do the dirty work”
  • One implication would be that Fed will continue to react very slowly to signs of inflation; in addition, there would likely be further upward pressure on inflation break-evens and Fed would be extending rally in risk assets
    • With higher inflation, nominal funds rate should peak at higher level, giving Fed more ammunition to fight next recession
  • BofAML’s conviction about mid-yr Fed hike “has been slipping”; “so-so” employment report was “final straw”
    • Mid-yr hike isn’t impossible, yet “center of gravity” has moved out
    • Now sees hikes in Sept., March 2017
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Ethan Harris (Bank of America Corp)

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HALISTER1: Invesco Exits Greek Bonds, Finds EU Credit Valuation Alluring

Invesco Exits Greek Bonds, Finds EU Credit Valuation Alluring

(Bloomberg) -- Invesco boosts holdings of credit after cutting exposure to peripheries by getting rid of Greek goverment bonds, portfolio manager Lyndon Man says in interview.
  • Sees opportunities in credit, given ECB’s QE program, and CPI and GDP environment, London-based Man says in interview; runs very low risk in sovereign and fx space
  • Prefers to buy financial, subordinated debts, HY in relative value terms and sees value in any credit assets that ECB is not buying
  • Liquidity in European credit market remains ample compared with peripheral bonds market
  • The spread premium in periphery bonds, especially for countries like Greece, Cyprus, don’t compensate investors for risk
  • Invesco still believes in peripheral convergence theme but valuations are less attractive now
  • Among peripherals, prefers Italy against core countries such as Germany, France, Netherlands
  • Fund is underweight Spain as sees risk heading into the elections in June; holds some long positions through options as country’s fundamentals remain solid
  • In FX space, Invesco is long sterling against a basket of currency including euro, as expects U.K. to vote to stay at June referendum
  • NOTE: Man manages Invesco Euro Bond Fund, which had about EU800m in assets under management as of end of March; Invesco Euro Bond Fund is part of Invesco, which managed $771.5b at the end of March, Lyndon says
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
2539Z GR (European Central Bank)
1004Z GA (Hellenic Republic)

People
Lyndon Man (Invesco Ltd)

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