In its first statement since December's interest rate hike, the Federal Reserve gave no indication that it will change course on its expected rate-hike path today. PIMCO's CIO of U.S. Core Strategies, Scott Mather, joined the Halftime Report to give his take on what the Fed should do. His argument mirrored the statement itself--he believes that despite recent global volatility, the fundamental U.S. economy remains strong.
Mather thinks a March rate hike is not off the table. As we head back into a more normalized economic environment, volatility--which was suppressed under quantitative easing--is to be expected. Mather sees this as a positive, saying "we definitely think it's the right thing that [the Fed] begin normalizing policy rates." The FOMC statement did say it was "closely monitoring" recent volatility. But since the Fed evaluates the real economy rather than the financial markets, global turmoil will not likely have an impact on the Fed's rate-hiking schedule, Mather argues.
The drop in energy prices is another reason the Fed should stay the course on its rate-hike plan according to Mathers. He believes lower oil in particular is "positive for the U.S. economy" since consumers will have more spending money in their pockets but it will take "some time for all those positive effects to reveal themselves." As corporate profits near a cycle high there will be headwinds ahead. But that's not the entire economy, he says. "It's an important re-balancing step...it doesn't have to impact the U.S. economy in a major, negative way."
In terms of the bond market, if the fed continues on its rate hike path, Mather's sees a 2.5% yield on the 10-year U.S. treasury. While rates stay low, Mather is looking for yield in the investment-grade corporate market.