Kathy Bostjancic Interview

Ayan: Thank you so much for coming Kathy the agenda for today is an agenda of global markets one thing to discuss is the impact on the equity markets on other markets because of the Portuguese yesterday, did that calm down? How do you look at it?
Bostjancic: Sure there’s a lot to digest I think the first thing I would say is that they’re still  the FOMC which is still being led by the DOEs. So overall the message was, we’re in no hurry to raise interest rates they will stay low for a very long period. But other commentary that was very prominent in the minutes was just talk about investor complacency and excessive risk-taking. Another way to look at it is that investors undervalued risk or uncertainty going forward. What’s ironic about that is the Federal Reserve itself and the FOMC particularly is engineering that, because they continue to have this what I would say extreme forward guidance for the markets, they say that interest rates could stay low for a considerable period of time even once a quantitative easing ends. And which we now know will probably end in October but even beyond that, they said when the unemployment rate gets below the natural rate of unemployment the potential which most people think is around five and a half they could still continue to keep interest rates low because they think they’re so much excess capacity in the labor market.
Ayan: What the market doesn’t seem to believe that. Why is there such a discrepancy and what is your expectation?
Bostjancic: Rate lift-off expectations so we now think that they will exit this near zero percent strategy in the second quarter of 2015 so it’s not this year, it’s not the first quarter but the second quarter, but we were in the third quarter so we really  could afford a bit because the labor market indicators in particular were better. The latest employment numbers of non-farm payrolls fell more and more quickly but also long-term unemployed which is what Janet Yellen worried about came down a the other thing is a a guess on the margin you’re seeing so indications that wages are going to pick up and it may be more quickly than the Federal Reserve believes.
Ayan: I’m glad you mention that because unemployment coming to the level that they put the numerical targets inflation picked up right?  but the wage inflation is not there because we have the price inflation but do not have the wage inflation and we haven’t seen it for a long time, what is your expectation?
Bostjancic: What we see is some indications it was mentioned even in the minutes, small businesses plans on actually increasing wages and that’s a great leading indicator for broad which measures in general. So that may mean that it won’t be too long, maybe another two quarters or so, before we actually start to see which is bigger that’ll be good news for the consumer. I would also argue that is good news for corporate america assuming that inflation rises just as fast maybe a touch faster because corporate America needs pricing power to generate revenue growth and if you know anything about the equity market which really critical for the equity market is not just with the Federal Reserve. But they need to have steady growth to maintain this positive momentum.
Thank you.