Odds of US Federal Reserve tightening monetary policy have increased: Christopher Wood, CLSA

Christopher Wood, managing director and chief strategist of CLSA has said that the odds of US Federal Reserve tightening its monetary policy have increased over the past two weeks.

The chances of interest rate tightening have increased after US employment cost index for March ending quarter (1Q 2015) showed the biggest year-on-year gain since 2008.

US Federal Reserve Chair, Janet Yellen warning about stock market valuations have also increased likelihoods of interest rate increase in US. “This is not her usual style, and is the sort of thing that she is likely to talk about if she is really contemplating raising rates, or at least is being increasingly pressured by her colleagues to do so,” Wood said in GREED & fear report to its clients.

CLSA’s chief strategist said that it’s now only 55/45 that the US Federal Reserve would not raise rates this year.

The US bond markets is beginning to show growing signs of a monetary tightening possibility, with the 10-year Treasury bond yield reaching 2.29% on week ending Friday, up by 65 basis points from the low of 1.64% at the end of January.

Wood added, “this is simply the more long-term Treasury bond yields rise now, the more the yield curve can flatten if tightening really commences”.