“An earlier start to raising rates would also allow a smoother, more gradual process of policy normalization, giving us space to fine-tune our responses to any surprise changes in economic conditions”. Stagnation can also occur on a smaller scale in specific industries or companies or with wages. Amid this backdrop are lingering doubts about the direction of the Federal Reserve. Financial stocks are likely to rise, lifted by expectations that higher interest rates will benefit banks, while rate-sensitive utility stocks will continue to get pummeled. An actual Fed rate hike, and a dollar move toward $1.00 against the euro, would mark a further RMB appreciation and a loss of Chinese competitiveness which the authorities will have to counter.
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A few years later and it is clear the Fed failed, so where to now?
The Stoxx Europe 600 was recently 0.1% lower, following a 1% drop in USA stocks in the previous session as investors anxious about the impact of higher interest rates on equity markets.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1 per cent. Shanghai stocks lost 0.6 per cent and South Korea’s Kospi dropped 1.1 per cent.
Chicago Fed President Charles Evans, a voting member of the Federal Open Market Committee, the U.S. Federal Reserve’s policy-making arm, said Friday that the report was “very good news” and that strong jobs growth would help push up inflation.
But now that a hike appeared imminent, markets were actually quite sanguine, brokers Capital Economics noted.
“To my mind, the decision was a close call, in part reflecting the crosscurrents we’re navigating”, Williams said in the text of a speech delivered Saturday at an education event in Tempe, Arizona. Futures traders on Friday were pricing in a 70 percent chance of a December liftoff, something they had seen as a 50-50 proposition just days before.
Briefing.com analyst Patrick O’Hare said Labor Department data showing the USA economy added 271,000 jobs in October, 90,000 more than forecast, would “probably leave little question in the Fed’s mind that it should raise the target range for the federal funds rate at its December meeting”. USA retail figures for November and early December will be key, but the economic indicators for the world’s largest economy are strong enough that the Fed can raise rates next month. “When will the Fed raise interest rates?” has been the question to ask, it seems, after every data release coming from the US.
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The New Zealand dollar gained ahead of Chinese data that will give provide an update on the strength of the world’s second-biggest economy, while investors weigh the implications of an interest rate cut in December, when the United States may be raising rates.
