Easy money policies overseas push the dollar higher, hurting US exporters and making it harder for the Fed to get inflation back up to its 2 percent target.
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Hideaki Kuriki, a portfolio manager at Sumitomo Mitsui Trust Asset Management in Tokyo, said he’s betting Treasury yields will have trouble pushing higher thanks to none other than the plunge in oil prices.
The BOJ is likely to trim its forecasts but stand pat with financial markets stable and no clear evidence yet that overseas headwinds are damaging corporate sentiment, say sources familiar with its thinking. Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond, once again dissented, as he did at the September meeting, arguing the Fed should start to raise rates now. That is the first time the generally opaque Fed has hinted it could raise rates after a specific meeting.
But credit extension figures out on Thursday showing that spending in the economy is weak, coupled with other weak economic indicators, could cause the Bank to pause. More importantly, in a sort of a U-turn, the Fed nearly dropped its cautious commentary about fragility of the global economy, which means that the door is wider open for December that what was previously thought.
Yellen after the September meeting noted that 13 of 17 Fed officials expected the first rate hike to occur this year. Amid the FOMC meeting, the currencies of developing markets would depreciate but gain after the meeting ended. But since then, he said, markets have stabilized.
“What has happened in the last six weeks is that volatility has come down”, Williams said. I think the FOMC is trying to downplay the role of global economic gloom may have on its decision and refocus on inflation and labor – its two mandates.
The FOMC has remained tight lipped about its plans, noting that it will continue to focus on employment and inflation rates and gauge whether those continue to see improvements.
Commerzbank said the Fed appears to be less anxious about global economic turmoil as the situation on the emerging markets has calmed. Currently, short term interest rates are in the range from 0 to 0.25%.
“Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further”, it said. “Even though there are compelling reasons for the Fed to hold off policy tightening this year, it does looks like they are prepared to go through with it”.
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The paper asserts that since 2010, this rate has been at or below zero.
