(Reuters) - U.S. central bankers may have to speed up the pace of their expected interest rate hikes late next year to prevent prices from rising too quickly, an economist at billionaire Steven A. Cohen’s family office said on Friday.
For now, investors and analysts largely expect that the Federal Reserve will announce its first rate hike since June 2006 possibly in December, and will move very gradually from then on further hikes, taking care to not squash the growth it has nurtured with years of easy money policies.
But Dean Maki, chief economist at Cohen’s $11 billion Point72 Asset Management, sees some dangers on the horizon if unemployment, now at roughly 5 percent, continues to trend lower and inflation ticks higher.
“In late 2016 or 2017, the Fed has to start going faster,” Maki said at the Reuters Global Investment Outlook Summit in New York on Friday.
Maki expects to see at least one rate increase every three months, possibly more.
“In 2016, we will see four or five rate hikes, a least once a quarter,” he said.
With so much attention focused on when the Federal Reserve will finally shift course, Erin Browne, a Point72 portfolio manager who bets on currencies and global equities based on macroeconomic trends, said the market “just wants to get it over” with.
The pace of future hikes is far more important than the exact date of when the tightening begins, Browne said, adding that markets are pricing in a 75 percent chance for a move in December.
Cohen’s Point72 is one of the largest investment firms on Wall Street and its moves and forecasts have been closely watched for decades.
The firm, previously a traditional hedge fund manager known as SAC Capital Advisors, became a family office when the government required the firm to return outside capital as part of an insider-trading guilty plea and related fines in 2013. SAC earned an average 25 percent return during its 22-year history, according to former investors.
Browne, the macro portfolio manager, said the U.S. dollar was likely to continue its rise against other major currencies in 2016, including the euro, yen and the Australian dollar. The U.S. dollar has already climbed some 12 percent against the euro this year.
She recommended shorting the currencies of countries that sell into China, such as the Malaysian ringgit, Thai baht and Indonesian rupiah. Chinese growth was unlikely to slow dramatically, a so-called hard landing, given steps the government could take, such as further devaluation of the renminbi, Browne said.
Browne was optimistic on developed market stocks. That included the U.S., given moderate economic growth, and equity markets in Europe and Japan, given the likelihood of additional monetary stimulus.
“The backdrop for developed market equities next year is quite positive,” she said.
Trading big economic themes has been tough for some funds this year, with executives at Fortress, BlackRock and Bain Capital deciding to shut down global macro funds amid losses.
One danger has been that too many funds made similar bets and failed to scale back their positions in time.
Point72 is best known for stock investing, but now includes approximately 7 macro and 20 quantitative portfolio managers, alongside 70 for equities. The family office employs close to 1,000 people.
Editing by Bernadette Baum