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At the same time, there will be pressure to raise real wages. When the unemployment rates gets to about 6 percent, that’s usually the trigger for wage gains, he added.
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The consensus has been that the Fed will raise rates near the middle of the year, and Doll agrees on that timeline.
“The decline in energy prices is on their radar screen, but I don’t think that’s enough for them to stop, unless there is financial dislocation, credit tightening and bankruptcy problems associated with that that would cause them to delay.”
What’s the rationale for raising rates? The economy is now growing above trend, and nominal growth—real growth plus inflation—is around 5 percent. In addition, rates started at zero.
“We got to zero because there was an emergency,” Doll said. “That emergency has passed, and as a result the Fed needs to get on with it, in my judgment.”
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“This is normal. Expect more of these kinds of selling squalls.”
Doll’s targeting 2200 for the S&P 500 Index, give or take, and that would take the stock market up 8 percent for the year.
How could a rise in rates affect the stock market? Historically, the early increases in interest rates are generally not bad news for the stock market, just marginally less good news. In the 12 months leading up to the first rate increase, stocks tend to do very well, and in the 12 months following, they generally do OK.
And over the last 100 years, stocks failed to go down in years ending in ‘5.’ In fact, gains on average have been very robust.
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That’s not to say that Clinton won’t get the nomination.
“I’m saying by the end of the year, I don’t think it’s going to be obvious who the nominees are on the other side of the aisle.”
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