By Noah Buhayar and Daniel Kruger(Bloomberg) — Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., said it would be “very tough” for the Federal Reserve to lift interest rates this year because of the stronger U.S. dollar.
“That would exacerbate the problem,” Buffett said in an interview on the Fox Business network. “I don’t think it’ll be very feasible to do. I think it would have a lot of international repercussions.”
U.S. economic growth, outperforming most industrialized counterparts, has helped push the nation’s currency higher than it’s been in more than a decade against currencies of six trade partners. That’s making it cheaper for Americans to buy imported goods and helping to lower inflation that’s already below the Fed’s goal, making it harder to boost rates.
Chair Janet Yellen said Dec. 17 that central bankers would have to be “reasonably confident” that inflation would move back to their 2 percent target over time to begin raising interest rates, which have been near zero since December 2008 to help spur the economy.
The dollar’s strength is pushing long-term Treasury yields to record lows as overseas investors look to profit from the rising currency. U.S. 30-year debt traded at 2.22 percent on Jan. 30, the lowest yield since at least 1977 when the Treasury began regular sales of the securities. The current 30-year bond yielded 2.35 percent Wednesday.
‘Most Dangerous’
Buffett, 84, has long advised investors to steer clear of bonds at their current low yields and in 2012 said they are among the “most dangerous” of assets. Instead, he’s favored picking stocks and buying whole businesses to build Omaha, Nebraska-based Berkshire into the world’s third-biggest company.
Risks still lurk in buying debt, he said Wednesday.
“The last asset I would want to buy is a 30-year government bond, but that’s a by-product of other policies which make sense,” he said. “I don’t want a 10-day bond. There’s a good chance, who knows what the probability is, but that a 30- year bond, you know, with a 2 1/2 percent coupon, that bond could sell at 60 very easily sometime in the not too distant future. Who knows?”
Buffett’s view of Treasuries is more pessimistic than those of economists. Should the 30-year Treasury fall by year-end to 60 cents on the dollar, from about $1.14 currently, the yield would climb to 5.86 percent, according to data compiled by Bloomberg. The median forecast for the securities by 51 economists in a Bloomberg News survey published Jan. 15 is for the yield rise to 3.35 percent. – BLOOMBERG
