Fed Shouldn’t Kid Itself on Rate Risk, Says $200 Billion Manager

  • Reaction is going to be negative, OppenheimerFunds CIO says
  • Memani sees Federal Reserve lifting rates in July or September

OppenheimerFunds' Memani: Fed Has Better Footing

Federal Reserve policy makers must appreciate the danger that higher interest rates could hurt the U.S. economy by strengthening the dollar and pressuring global growth, said Krishna Memani, chief investment officer of OppenheimerFunds Inc.

“That reaction is going to be negative,” he said Monday in a Bloomberg Television interview. “The Fed can’t kid itself on that.”

The central bank may be getting closer to another rate hike in the coming months after an increase in December, New York Fed President William Dudley said Thursday, echoing sentiment in the minutes of the Federal Open Market Committee’s April policy-setting meeting. Central bankers previously dialed back their expectations for how many times they’ll lift interest rates this year, after weak first-quarter data in the U.S. and risks tied to growth abroad.

OppenheimerFunds, owned by Massachusetts Mutual Life Insurance Co., oversees more than $200 billion of assets. Memani cautioned that a stronger dollar could limit exports, stifling the U.S. economy. Gross domestic product rose an annualized 0.5 percent from January through March, the weakest in two years.

‘Risky Move’

“It’s a risky move, but they’re at a better place this time around than they were last year,” Memani said. “The trick for them is to prove to the market that this is not a sustained rate rise.”

The bond market is pricing a probability of about 30 percent for a rate hike at the FOMC meeting in June, compared with about 12 percent the day before last week’s release of minutes.

The Fed may have room from higher rates if the dollar doesn’t strengthen “in a big way,” as it did earlier this year, Memani said.

“I think they shouldn’t do anything, but they are going to do something,” he said. “And that is more likely July or September.”

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