U.S. stocks initially rallied as traders welcomed the Fed’s easier monetary stance, which typically supports stock prices. But share subsequently tumbled as investors grew increasingly wary of the central bank’s cautious economic projections.
But Frenkel told CNBC’s Martin Soong at the China Development Forum in Beijing on Saturday that the Fed revised its economic assessment only for the near term.
“I don’t believe that their assessment about the medium and long term has changed,” he said.
“To put it differently, the Fed said: ‘You know what, let’s be patient in assessing where we go. We do not change the direction — in fact we believe that we will continue to raise rates next year maybe at a slower pace.’ So that’s the modification I see in it: It’s not a U-turn, it’s changing the speed along the same trajectory,” said Frenkel, who was the governor of the Israeli central bank from 1991 to 2000.
The outlook for the U.S. economy took a turn at the end of last year, according to Frenkel. Then, additional uncertainties emerged in the form of slower-than-expected recovery in Europe, global trade tensions and heightened geopolitical risks.
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