Markets have been more positive on the whole this week as we appear to have re-entered into a phase of bad news being good news and investors rewarding the prospect of interest rates being lower for longer.
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“Over the intermeeting period, the concerns about global economic growth and turbulence in financial markets led to greater uncertainty among market participants about the likely timing of the start of the normalization of the stance of USA monetary policy”, it added.
Many economists say the weak jobs report for September released last week makes an October rate hike unlikely.
“I hope to avoid the trap of letting one or two months’ specific data overly influence my outlook for the economy overall”, he said.
“If you look at the USA economy right now, you see a pretty strong domestic economy”, he said. That’s a problem for the Fed because it needs inflation to pick up in order to justify a rate hike.
“The mood is much more positive”, said Darren Ruane, head of fixed interest rates strategy at Investec Wealth & Investment, which oversees about $43 billion in assets.
Big apple/Detroit Two powerful Federal Reserve policymakers on Friday fortified Fed Chair Janet Yellen’s note that the importance rate hike is originating by year’s end.
On Friday, gold bulls were off to the races, spurred by a turnaround in sentiment towards commodity markets and fresh indications that a rise in USA interest rates may be further off than previously thought.
Yesterday’s Bank of England October policy announcement resulted in the expected outcome whereby United Kingdom official rates were left unchanged following another 8-1 vote for so doing (Ian McCafferty was again the sole dissenter in favour of a hike).
Crude prices have seen healthy advances in the past week, surging more than 10 percent to multi-month highs as worries about a stronger dollar, a supply glut and weak demand ease. These developments have sent the dollar up in value, which could hurt USA exports and push oil prices lower. Turmoil in the financial markets and slowdown in the Chinese economy were cited to be the reasons behind the Fed’s dovish stance. The Fed was anxious about the downside risks to inflation, the appreciation of the USA dollar, and the challenge that a premature rate rise would have on its credibility while the global economy slowed.
Officials also noted that the Fed’s policy tools were better able to deal with an unexpected jump in inflation than it could deal with inflation falling even lower.
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At least one member of the Federal Reserve is anxious about the central bank falling short of its inflation target. A few investors have stretched out to longer duration fixed-income securities in an attempt to lock in a higher yield in the current low-rate environment. Shorter maturity equals lowers price volatility to interest rate changes.
