Markets outside the U.S. had a mixed reaction to the statement with the Nikkei 225 index closing 0.2 per cent higher, while in early trading Germany’s Dax stayed steady with a 0.03 per cent drop, while the FTSE 100 index slipped 0.9 per cent.
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That’s when the USA central bank’s committee announces whether or not they’re raising rates this time. And, the People’s Bank of China is still trying to staunch its own economic/financial bleeding with its own policy options. While this statement doesn’t mean that a rate hike at the December FOMC meeting is a done deal, but it signals that the decision whether to hike or not depends on the incoming economic data between now and then. Don’t be shaken by evidence of economic stalling here at home (Macroeconomic Advisors’ tracking estimate of third quarter GDP growth is at 1.5 percent with the fourth quarter at 2.4 percent). The Fed will have its work cut out tom prevent a slip in EUR/USD under 1.10 (towards 1.08) and that, in turn, will make the DXY chart look scary to technical analysts. Therefore, higher interest rates will directly lower the likelihood of the Fed obtaining its magical goal of 2% inflation, but in fact will increase the probability of further disinflation, deflation and debt collapse.
In Europe, banks are still recovering from the financial crisis of 2007-2009. Anxious consumers and businesses don’t want to borrow.
“They have really struggled to maintain any kind of momentum”, says Carl Tannenbaum, chief economist at Northern Trust.
The Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate.
That’s not to say we won’t see pull-backs along the way.
Fed Governors Lael Brainard and Daniel Tarullo urged caution, arguing slower growth overseas could sap US economic strength and keep inflation too low. Japan has endured decades of stagnation, its economy constrained by a shrinking population, economic inefficiency and public doubts that growth and prices will ever grow quickly again. Theyre either cutting rates or continuing to buy hundreds of billions of dollars worth of bonds.
A narrow majority of the economists expect a rate increase in December. The positive labor data is a good sign for Eurozone’s largest economy especially in light of the recent VW scandal and suggests that the fallout from that event may be minimal for the time being. Beijing wants to reduce China’s dependence on exports and often-wasteful investments in real estate, factories and infrastructure.
That being said, with the entirety of the market leaning to the NO RATE HIKE THIS YEAR side, all it took was a NOT DOVISH note to upset the entire apple cart.
As in September, there was one dissenting opinion on the FOMC from Jeffrey Lacker who would have preferred to raise the fed funds rate 25 basis points. And it’s kept the short-term rate it controls near zero for nearly seven years. At the lowest, it settled at $1.092 – the lowest level in the pair since August.
The pace of job gains slowed and the unemployment rate held steady.
The U.S. dollar’s recent rebound is unlikely to overly concern the Fed either as financial conditions have eased significantly since their last meeting in September.
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So, altogether, these central banks and governments may have pumped $2.5 trillion into the global economy and world markets in 2015 while the Fed sat on its hands. The Wall Street casino and all its financial engineering marvels benefitting the “one-percenters” (stock buybacks, increasing dividends, mergers, acquisitions, leveraged buy-outs, etc.) will crumble in a New York minute once the gravy train of the Federal Reserve interest rate put is removed from the board game.
