Are US interest rates turning ? How will the rising US$ affect the US economy ?

    Schwaben Blog

 

March 20, 2015

 

Fed not patient anymore- Interest rates hike soon?

 

Weekly Statistics:

Today

Week Ago

Year Ago

20-Mar-15

13-Mar-15

21-Mar-14

S&P TSX

14,942.41

14,731.50

14,335.76

S&P 500

2,108

2,053.40

 1,866.52

DJIA

18,128

17,749.31

16,302.77

OIL

$45.53

$45.00

 $89.80

USD vs CAD

0.7929

0.7820

0.8913

Gold

$1,182

$1,156

 $1,338.80

 

 

The Federal Reserve released their policy statement on Wednesday. The Fed removed the word “patient” from their statement and opened the door for an interest rate hike as soon as June 2015, while also indicating it will go slow once it gets started. The equity markets were positively surprised by this statement and all major indices posted gains of about 1%.  In the currency markets, the US dollar posted losses against major currencies, which led to a gain in oil prices. The continued strengthening of the US dollar did not allow many oil-importing nations to reap the full benefits of the more than 60% reduction in oil prices (from their peak prices in June 2014). The Fed is preparing for a rate hike while stagnant growth in Europe, China and Japan is pushing their central banks to ease their monetary policy. This has put upward pressure on US dollar, which has gained more than 4% since last meeting of Fed policy makers on January 28. “Just because we removed the word patient from the statement doesn’t mean that we are going to be impatient”, Fed chair Janet Yellen said during a press conference in Washington on Wednesday. She also said “This change does not mean an increase will necessarily come in June, although we cannot rule that out”. She has previously said that the Federal Reserve would be patient in increasing the interest rates but now that the word “patient” has been removed, different economists and financial commentators are speculating about different timings for a rate hike. Charls Evans, the Chicago Fed President, told reporters that he still thinks that a rate increase in 2016 is more likely than an earlier move, based on the economic conditions as he sees them. In a recent survey conducted by BNN, maximum number of economists favoured a rate hike in October with a probability of more than 50%.  There was also a poll conducted by Reuters which showed an even split for a rate hike between June and in the later part of the year. The last time the Fed raised the interest rates was in June 2006, when a roaring housing market and strong economic growth prompted it to push its target rate to 5.25% (Financial Post).

Source- Bloomberg, Globe Investor Gold, Financial Post, Market Watch

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