The Federal Reserve’s reluctance to raise its benchmark interest rate in 2016 has been principally to protect the US currency, according to HollisWealth investment manager Paul Green.
While the signs are the Fed will indeed raise rates next month, it will mark the first increase this year. In last December’s forecast, Fed Chair Janet Yellen announced that 2016 would likely have four rate hikes, but that was dialled back earlier this year to two.
Head of Green Private Wealth Counsel, Green believes the Fed’s inertia so far this year can be attributed to its safeguarding of the US dollar, the country’s multinationals and foreign trade.
“The US still has quite a few oil jobs, and they also don’t want to pummel some of their major trading partners that are commodity-centric economies,” he says. “That’s why they (The Fed) have been manipulating the dollar in my opinion. That’s not their mandate; their mandate is for employment and inflation.”
One area where a rate hike will have major implications is the gold market. Global uncertainty in the markets over the past six months has facilitated a rush to the safe haven, with the bullion price rising from $1,050 in January to 1,340 at close on Friday. While in normal circumstances Green would tend to limit his clients’ exposure to gold, he recognises its attraction currently.
“Gold has passed a pretty significant resistance line for us. Short term, the gold story is very interesting.”
In terms of commodities, oil has also experienced somewhat of a resurgence recently. Regardless, Green will maintain a cautious approach when it comes to such a volatile market.
“We wouldn’t be too bullish with oil,” he says. “There is still some issues in the Middle East in terms of supply, but oil is definitely in a secular bear market. We are happy to participate in that, but we are pretty much as exposed as we can be.”
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