The Fed has been stirring up markets with rate hike speculation in a big way since late August when key Fed officials said they could raise rates in September.
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Below is a round-up of what a number of the FOMC members said over the past month about a potential interest rate change. The economic statistics are unconvincing to many that the Fed should hike rates.
The only reason why some investors are holding out hope for a September hike is because US policymakers have suggested so. However, another Fed member, Rosengren, also spoke the following day in complete contrast alluding to the markets that low rates may be bringing on more risk than the Federal Reserve would like, comparing it to “irrational exuberance”.
And the only reason why the Fed would pull the trigger is to avoid hiking right after the election and before the holiday season.
That would mark a year since the Fed last raised rates and underscores the trouble it has had in hiking even once, against initial estimates it made in December of four increases this year.
Both the European Central Bank and Britain’s Bank of England kept monetary policy unchanged this month, although both with a bias towards further easing action later in the year. Monetary policy has been a major issue in recent years with Fed critics believing that its soft money policies are artificially propping up the economy. The rationale seems clear: with the USA economy near “full employment”, the lack of wage and inflation pressures points to a clear slack in the labor market that needs to be catered to.
The policy has weighed on bank earnings in the short term, but it should be a benefit in the long term because negative rates can lead to more capital expenditure and boost consumer spending, Yasutoshi Nishimura told Reuters. More needs to be done but the central bank’s hands have been tied for some time and intervention has not been seriously considered.
The soggy Asian session followed an uninspiring performance overnight on Wall Street where the Dow lost 0.2 per cent and the S&P 500 shed 0.1 per cent, with uncertainty over future interest rate hikes and lower energy shares weighing. They could also remove their timeline for reaching their 2% inflation target.
Yet it would be wrong to attribute the jump in yields to a sudden repricing of United States monetary policy. Brainard said that she wanted to see a stronger trend in USA consumer spending and evidence of rising inflation before the Fed raises rates, and that the United States still looked vulnerable to economic weakness overseas. Manufacturing activity slowed but only modestly.
Sterling inched down marginally after the Bank of England’s decision.
So the central bank will either raise rates by a quarter percentage point or do nothing. If this sentiment is echoed in the RBA minutes AND the RBNZ is dovish, it could mark a bottom for AUD/NZD. Before the release of the report, the Aussie was at levels near $0.7479. The move was driven entirely by oil, which dropped as low as $42.74 a barrel. However, data in recent weeks have shown signs of weakness, including the ISM surveys showing a decline in new orders and production in US factories in August and service sector activity at a six and a half year low. The index was consolidating in a narrow range throughout this week and a breakout or a breakdown was very much on cards.
Metropolitan Bank & Trust Co. rose 1.8 percent to P86.90, while food manufacturer Universal Robina Corp. gained 1.5 percent to P183.
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The past few weeks have seen exceptional back-and-forth speculation over the possibility of the US Federal Reserve raising interest rates next week for the second time in over ten years. But it would destroy market functions and put bond prices fully under the BoJ’s control. If true, this is a major sacrifice that sterling won’t be able to handle. Banks extend loans to corporate borrowers out of funds collected from depositors, but they are reluctant to cut deposit rates below zero.
