European GDP data, in particular that of Germany and the USA retail sales releases will be the main focus of the forex market as investors look for direction ahead of December and hints for the monetary policy decisions of the Federal Reserve and the European Central Bank. Dudley, the president of the Federal Reserve Bank of NY, commented that numerous barriers to a rate increase have receded.
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In NY, William Dudley said, “I see the risks right now of moving too quickly versus moving too slowly as almost balanced”.
Despite expectations of higher USA money rates, ING Financial Markets said on Monday that given lower inflation and a small current-account deficit, it expects a 25 basis point cut either on Tuesday or at BI’s December 17 meeting, and another 75 basis points of trims in 2016.
The US central bank has kept its short-term interest rate near zero since December 2008, the height of the financial crisis that culminated in the bankruptcy of the global financial services firm Lehman Brothers and led to massive government bailouts of the USA financial industry.
Part of the delay in raising rates this year has been the effects of a roughly 15-percent increase in the value of the dollar. In January, WND reported fears that tapering QE to zero could cause interest rates to rise, risking a severe market correction.
The question now is when the Fed will raise rates for a second time, and a third.
In a report prepared for the upcoming Group of 20 meeting in Turkey, IMF staff said spare economic capacity and very low inflation justified keeping monetary policy loose in most major advanced economies. The Fed’s preferred inflation measure rose just 0.2 percent in September, and is up only 1.3 percent in the past year.
The United States posted a budget deficit of $136 billion, up 12 percent from the same period previous year, the Treasury Department said on Thursday.
Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, also said that he was comfortable with raising rates gradually. “If we do not, then market participants might construe an early liftoff as a signal that the committee is less inclined to provide the degree of accommodation that I think is appropriate”. “I would view this as an important policy error”.
“Given the economic outlook, starting the process to normalize interest rates will help ensure that we can, indeed, take a gradual approach”, Mester said, according to the text of a speech she is scheduled to deliver later on Friday to the City Club of Cleveland. The Fed’s bond purchases didn’t start in earnest, he said, until early 2009.
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Dudley stopped short of saying whether he would vote to raise rates when the Open Market Committee meets next month.
