Concerns about US rate hikes biggest cause of recent market turmoil – Nomura

Richard Koo, Chief economist at Nomura, suggests that if China was not the source of the market turbulence that began early this year, then the primary cause remains concerns about Fed rate hikes.

Key Quotes

“Fed officials issued a number of hawkish statements early in 2016, as noted in the last edition of this report. Examples include Vice Chairman Fischer’s comment that market participants were being too dovish in their expectations for the pace of future rate hikes and Chair Yellen’s statement that it was important for the Fed to avoid falling behind the curve on inflation, since that could create the need for an “abrupt tightening.”

More recently, Mr. Fischer noted that the US economy was largely unaffected by large swings in stock prices in 2011, and San Francisco Fed President John Williams said that the 30% decline in share prices on Black Monday in October 1987 had had little impact on the real economy.

Mr. Williams also made a point of citing economist Paul Samuelson’s quip that the stock market has predicted “nine out of the last five recessions” in an attempt to emphasize that the stock market and the real economy are not the same thing.”

Richard Koo, Chief economist at Nomura, suggests that if China was not the source of the market turbulence that began early this year, then the primary cause remains concerns about Fed rate hikes.

(Market News Provided by FXstreet)

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