the thing about the rate hike is that the FOMC has been indicating one, the market has been expecting one and we haven’t had one for a really really long time. The monetary policy is way dovish and needs to be put into a normal environment, ie there needs to be some interest charged to the banks… its one of the last steps in the economic recovery and will start a lot of cash flowing through the economy. … and if they dash expectations they will completely disrupt earnings outlook for the entire market, and I don’t think in a good way, going out to the end of 2016… that will surely cause a correction… this meeting I’m not sure what’s going to happen but I don’t expect any dovishness and perhaps an every so slightly firmer indication of when the hike is going to be.
I don’t get your point. It is the lack of interest rates or having low level ones what makes the cash flowing through the economy. A rise will make the access to money more expensive to everyone, therefore less money in circulation.
Correct me if I’m wrong but having 0 interest rate doesn’t mean that banks don’t make money. Of course they charge for loans, and they charge their percentage above the interest rate level that the Fed puts there. The Fed is no there to make money. It is there to control the amount of money available.
A key point to me is the price of OIL. It has been very cheap for a while, therefore the low inflation. As OIL prices are recovering so it’s doing the price of most of goods in the market, and services.
If I remember right, one of the Fed goals is price stability and I think paying close attention to inflation will give us the hint for the interest rate hike.
the point is that over the past years with the fed policy the way it is money hasn’t been flowing. The banks have had to hoard cash to meet capital requirements as well as not making very much on the loans. When rates go up the banks will be able to charge more, make more and will want to lend more… and that is why cash will flow more freely. It won’t be free cash, but it will flow.
Money wasn’t flowing because we came from a global financial crisis. Interest rate close to 0 was what kept the money flowing. It is how the Fed decided how to manage this financial crisis and keep alive the economy.
Interest Rates are a way to control the economy expansion-contraction cycles, not a way to control the bank’s profits.
USD has gone through a strong swing against the rest of the currencies. One reason could be China’s slowdown. Big players might have foreseen that and run to the USD as a safe haven currency pushing it up.
The Fed has to rise the rates, but it is because it has to cool down this “cheap credit” driven economy. But the problem is that rising rates now will affect many people and businesses, as it will reduce the money flow.
I can’t see if making the USD even stronger can have its toll in the economy, as cheap imports could affect the GDP. It is cheaper to buy from overseas than to produce at home.
The Fed has to rise the interest rates carefully managing the proper timing. As the USD seems to be giving back part of its gains one possible way would be to wait for the USD to be weaker and then drop the bomb. Properly timed it can happen with a weaker USD and at the same time that inflation is picking up, because a weaker USD will push OIL prices up and therefore rise inflation. Two birds killed with one shot.
That might be the reason why the Fed is delaying and delaying the decision. It was going to be at early 2015, then in June and now talks are about September.
as yellen put it, as long as US’s economy improve, fed will hike the interest rate but the rest of the world are slowing. how is that possible that only they stand big and tall.
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Rate hike or not? A little reading might bring you closer to the current US economic developments:
In case you missed the last NFP Report, here is the official document with all the important numbers:
During the whole year the world has been waiting for a rate hike. Most likely we have not been closer to it than now. Check out another US speech and the wording in it, maybe you get a little closer if that interest rate hike will occur or not in December:
William C Dudley: The US economic outlook and monetary policy
If you missed Yellen´s speech and do not understand why some USD selloff happened during the week, you might find some answers here:
FRB: Speech–The Outlook, Uncertainty, and Monetary Policy–March 29, 2016
Interesting reading…
The Case For Gold: Shorting The Federal Reserve | See It Market
And the graphs just show how astronomically in debt the world’s central banks are…
Debt , debt, debt…
Is that not what threw us all into the last financial crisis?