James Glassman, Managing Director and Senior Economist with JPMorgan Chase in an interview to CNBC-TV18 shared his views on the US Q2 GDP number and Federal Reserve's decision to continue with the tapering of USD 10 billion bond purchases per month.
"I personally believe that the US economy is only half way out of the recession, so that means we still got a little bit of time for good growth before we have to start worrying about the Federal Reserve raising interest rate and I think that message is coming through their own statements," said Glassman.
Below is the transcript of James Glassman's interview with Nigel D'Souza and Ekta Batra on CNBC-TV18.
Nigel: Overnight we got that US gross domestic product (GDP) number but are you reassured about the Fed's intention to not hike interest rates in the future and when do you expect that to come about?
A: The GDP data did not reveal anything new about the economy. We have been ignoring this data for a little while because we didn't believe the economy contracted in Q1. Q2 rebound, just offsets that the employment data has been suggesting for a while that the economy was doing better.
The Fed's announcement today, they showed a little less worry about low inflation but then they also mentioned that they are concerned about the economic slag, unemployment and the economy that has not probably pictured and captured in the unemployment rates. So I think there was nothing new, we didn't move any closer to the day when we think the Fed would be raising interest rates, the market is priced for this to start some time in the year for now. That is probably not an unreasonable point of view and like it happened between now and then, of course.
What we are learning from the Fed, because they believe that there is still a lot of unemployment that is not measured, including people who work part time, including young people who dropped out of the labour market will go back to school. There is a sense then you put that together with stable and low wage inflation and it suggests that the Fed is going to be patient until they see more signs of improvement in the labour market. As well as the economy is doing, I personally believe that it is only half way out of the recession so that means we still got a little bit of time for good growth before we have to start worrying about the Federal Reserve raising interest rate and I think that message is coming through their own statements.
Ekta: What in your opinion would be the capital flow into emerging markets post the data points that we are seeing from the US in terms of the strong GDP data as well as the FOMC policy taper being inline? What does that mean for emerging markets as a whole?
A: I think a patient Central Bank and struggles in Europe - all of that suggests an economy that is continuing to improve and as long as inflation problems don't emerge the risk appetite remains strong. And as the emerging markets outlook looks better, which we have seen across Asia - we are still looking at an environment that is pretty constructive for investor appetite for risk assets.
If you are an investor and you believe that it is going to be relatively stable and low, it is going to encourage them to continue to look for better returns and emerging market class is an important one for those.
