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Argument for Interest Rate Hike "Quite Strong"

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Friday, November 11, 2016

Federal Reserve Vice Chair Stanley Fischer spoke in Chile this morning at a central bank conference, in which he said the case for removing accommodation (raising interest rates) is “quite strong.” He said he is optimistic a rate hike would be manageable abroad, and that a stronger U.S. economy should help other countries.

Fischer also said that, over time, rates can be expected to plateau at lower levels than normal. Which would mean the vice chair does not expect inflation nor interest rates to run out of control in the months and years ahead.

These statements come even after we all absorb the initial plans from President-elect Trump — borrowing for massive infrastructure spending, which is innately inflationary. That Fischer still looks toward modest growth domestically overall may say something about the larger scope of the U.S. economy over the next year or two.

This would tend to lead to a discussion over expected tariffs with foreign nations the U.S. does lots of trading with. Take China, for instance — if goods manufactured there are suddenly faced with big import costs, that country’s government may (more than “may”) choose to make it harder for Amazon (AMZN - Free Report) or Facebook (FB - Free Report) to make inroads there.

Meaning growth in some sectors like construction and materials looks to essentially be transferred from others like technology. Not to say the U.S. economy is a zero-sum game — historically, it definitely is not — but that gangbusters growth in all industries for the dawning of the Trump Era is not very realistic.

After the bell Thursday, Disney (DIS - Free Report) underperformed Q3 earnings estimates on both top and bottom lines. Earnings per share of $1.10 missed the consensus by 5 cents and fell 8% year over year, whereas $13.14 billion in revenues was lower than the $13.47 billion expected. Declining subscriber numbers in the company’s ESPN division looks to have played a big part in the miss.

That said, the entertainment conglomerate is bullish on digital bundle offerings in the future, and CEO Michael Iger said he intends to “look expansively” at “opportunities to create more value” for Disney. What might this mean? Dare we speculate Disney buying Twitter (TWTR - Free Report) might help synergies between bolstering ESPN and utilizing the troubled social media company’s algorithmic value? Or, keeping the Trump initiatives in mind, would Disney do better investing in raw materials for building a giant wall?

In other earnings highlights, Humana (HUM - Free Report) posted solid Q3 numbers and upwardly revising guidance, hitting a new 52-week high in the process. AstraZeneca (AZN - Free Report) saw sales slow in its Q3, but earnings beat estimates in the quarter. JCPenney (JCP - Free Report) posted another quarterly loss, but narrower than expected.

Mark Vickery
Senior Editor

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