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videos | IST

Fed has done well in laying out much clearer framework, says Deutsche Bank’s Sameer Goel

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The much-awaited Federal Open Market Committee or FOMC meeting is over. The action as expected was a pause and a promise of a long pause at that. Sameer Goel, the Head of Asia Macro Strategy at Deutsche Bank believes Fed has done well in laying out much clearer framework.

The much-awaited Federal Open Market Committee or FOMC meeting is over. The action as expected was a pause and a promise of a long pause at that.
The FOMC statement said in 3 places that it wants US inflation to remain over 2 percent for a period of time before it changes its view. It sees inflation at 2.4 percent this year, 2 percent next year and 2.1 percent in 2023.
Despite this, the FOMC believes the Fed rate of 0.25 percent is appropriate. But as of now financial markets are still iffy and skittish.
But will they settle down and will equities restart their rally given the Fed's improved GDP outlook or will bonds continue to be another for the bulls.
Sameer Goel, the Head of Asia Macro Strategy at Deutsche Bank believes Fed has done well in laying out much clearer framework.
“I think the Fed has done well in laying out what is I would argue a much clearer framework now with respect to how it thinks about its new flexible average inflation targeting regime and what are the hurdles which it foresees or what is the threshold of where it needs to see the real economy parameters around unemployment, output gap, inflation, etc. to move before it would consider lifting rates,” he said in an interview to CNBC-TV18.
He said that Fed made the point that it would take a long time for inflation to be above target. However, he believes that there is a wide gap between what the Fed is saying and what is in the market.
“I think they made the point across that it would require a long period of having inflation above their target of 2 percent and unemployment at their desired target for them to see the cost benefit moving towards lift off. So, I think that in itself was extremely useful for the market. But does that make the market walk towards the Fed or does it keep being skittish or skeptical about the Fed strategy? I think only the coming days would say. But I would point out that there is a fairly wide gap between what the Fed is effectively telling us through its dot plot and its projections versus what is still in the market. I think the pricing has eased off a little bit since the FOMC, but there is still a fairly wide gap which I suspect will have to gradually narrow down,” he said.
He believes that the market should keep some kind of risk premium. “I do feel that it would be hard for this gap to persist. I think it would be reasonable to expect the market to keep some kind of a risk premium that this timeline is brought forward. But to our mind, I think what they have laid down is a framework which is anything for our houseview or our global economists have actually pushed back their expectation now to think that the lift off from the Fed will probably now only be in 2024,” he said.
According to Goel, the Indian 10-year bond yield should be around 6.50 percent in H2CY21. “Our view, and this has been even before the FOMC and it does incorporate our global view of where we think US yields and global rates will largely reprice to, to our mind we are looking at the 10-year bond yields in India in the second half of calendar 2021 to largely be in that 6.50-7 percent kind of range. However, it is the levels, but it is also about how we get there which is going to be the important thing to watch out for,” he said.
For full interview, watch video.