asian stocks open in the green on yellens rate hike assurance 1425862015

Bond king Bill Gross adds to chorus demanding a rate hike

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By :  ,  Financial Analyst

Asian markets have opened positively in response to the overnight speech by US Fed chief Janet Yellen in which she kept alive the possibility of a rate hike within this year.

Ms. Yellen said she still expects to increase interest rates in 2015; that concerns about weaker global growth likely will not affect that plan; and improvements in the US economy "will likely entail an initial increase in the federal funds rate later this year."

"Prospects for the US economy generally appear solid," she said. "My colleagues and I, based on our most recent forecasts, anticipate that this pattern will continue and that labor market conditions will improve further as we head into 2016."

A strengthening US economy – one that can take up the slack from a slowing China – is good news for global economies, particularly the export-oriented ones in Asia.

Of late there has been a clamour, even from emerging market central bankers, for the US Fed to be done with its dithering on the interest rate hike and to get on with its highly telegraphed monetary policy normalisation.

Bond king Bill Gross said Wednesday that the Fed should accept near-term risks to financial markets as a necessary cost in the interest of a healthier financial system.

“Low or zero interest rates it seems do wonders for asset prices and for a time even stabilize real economies, but they come with baggage and as zero or near zero becomes the expected norm, the luggage increasingly grows heavier,” Gross said.

Gross wrote that it was time for a new thesis – something akin to what Paul Volcker did in 1981.

“The developed world is beginning to run on empty because investments discounted at near zero over the intermediate future cannot provide cash flow or necessary capital gains to pay for past promises in an aging society,” Gross warned.

In fact, American citizens are paying a stiff price for central bank policies, he said. “Expecting 8-10 per cent to pay for education, healthcare, retirement or simply taking an accustomed vacation, they won’t be doing much of it as long as short term yields are at zero,” Gross said. “They are not so much in a pickle barrel as they are on a revolving spit, being slowly cooked alive while central bankers focus on their Taylor models and fight non-existent inflation.”

Gross’ advice to the Fed: “Get off zero and get off quick.”

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