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Deepak Mehra
Commercial Bank of Dubai (chief economist)
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Deepak Mehra says the Fed hike the market expects next week would be a very big mistake because the US economy is weaker than headline data show.
I think there is sort of a belief in the market that now a Fed rate hike is definitely on the cards. I think it would be a very big mistake if they actually go ahead with it for a variety of reasons.
Deepak Mehra says the US economy is weaker than it looks: growth has slowed to 1.5% and even that is mostly AI infrastructure spending.
even if you look at the GDP growth we were running at two point one percent last year and now at one point five percent which is also predominantly due to huge AI infrastructure spend
Deepak Mehra blames the Treasury sell-off on Fed chair Warsh's communication (undefined reaction function, hawkish Jackson Hole) clashing with Bessent's long-bond buying, and says better communication is the fix.
I think the genesis of this bond market problem is Kevin Walsh's first FOMC meeting press conference where he could not define what his reaction function would be.
Deepak Mehra says a 10-year yield above 5% will not trigger a real equity pullback because earnings growth is the strongest in five and a half years; equities are on their own trip.
I think the general belief is that if 10 year treasury yields goes beyond 5 percent we'll have a real pullback in equities. I don't believe that because there are counter factors which is essentially earnings growth which has been so robust.
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