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Economic growth accelerating…….Philly Fed President Charles Plosser today stated that
the U.S. economic growth is accelerating faster than expected and that current
economic strength is broad-based.
What’s the
point? There has been considerable
debate about the pace of U.S. economic growth both for the short and long term.
Plosser’s comments support our view that the pace of U.S. economic growth
should accelerate this year which, in turn, should be positive for corporate
profits. Corporate profits are the primary driver of stock prices over the long
term. We think the stock market at its current all-time high levels is already
discounting, at least in part, the expected improvement in corporate profits in
2H-14. We have seen forecasts calling for growth in corporate profits of as
much as 10% in 2H-14. Link: http://money.msn.com/business-news/article.aspx?feed=OBR&date=20140624&id=17724994
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Plosser: Additional important commentary.....In his speech today, Fed President Plosser also stated
that the due to faster economic growth, the Fed may have to accelerate its plan
to increase interest rates and that the Fed should move to a “rules based”
policy system.
What’s the
point? Plosser’s comments today are
giving investors greater insight into the current thinking at the Fed regarding
interest rate and monetary policy. The comments are very important because of
the extreme policy by the Fed over the past five years. Plosser’s comments reveal the extent of
divided thinking at the Fed: the Yellen (highly accommodative) position vs. the
Plosser camp that inflation is more of a risk. Additionally, the fact that
Plosser would address the topic of a “rules based” policy regime for the Fed
reflects a further evolution in thinking at the Fed about not only policy but also about communicating
that policy clearly to the financial markets and thereby reducing policy uncertainty and confusion among
investors, which we believe has historically added to market volatility. Link: http://money.msn.com/business-news/article.aspx?feed=OBR&date=20140624&id=17724994
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