Fed policy is to be very accommodative for next couple of years: James E Glassman, JPMorgan Chase

In a chat with ET Now, J ames E Glassman, MD, JPMorgan Chase & Co., says there is a chance that a Fed rate hike would be a risk on trade for financials. Edited excerpts


ET Now: What is it that you have made of the Fed minutes? There is no clear direction so to speak but it seems like a December hike may be in the offing?

James E Glassman: I think so. They have been talking like this for a while. The news has been pretty good. We knew it would be a close call. The market is getting used to the idea of a possible next move in December and to me it is just not the end of it.

The Federal Reserve needs to get rates back to something a little more normal and I think the goal is to try to prevent imbalances from building up but the members remain very divided.

Fed policy is going to be very accommodative for the next couple of years, particularly if they go up very gradually as they say they want to. So a lot of these concerns that we hear about are really in the abstract.

There is going to be plenty of time for the economy to continue expanding and bringing in more people so far unemployed. We are setting up for a December move. I think the market is getting used to the idea. We have been certainly talking about a line up and as long as the labour market news is fairly positive, that is probably the most likely outcome.

ET Now: Do you think a December rate hike is actually a risk on moment? It is not a risk-off event and the reason why I insist on that is because Fed has smartly prepared markets for a rate hike in December and we have historically seen that every time when a rate hike has kicked in, it has only benefitted financials.

James E Glassman: Yes. The market believes that this is a positive thing for financials. So I do not know if it is risk on. The market is not fully priced for a 100% chance, yet you might think that there is a chance that it would be a risk on trade for financials maybe. I think it ought to be a risk on trade in the sense that having a central bank take their foot off the gas is a positive development because it means the economy is getting better and we should not view this as a big threat to the equity markets.

The fact that we have been talking about it so much, the markets are getting used to the idea. It may not be as traumatic as the moments in the past when we have seen discussions about Fed tightening.