Rates were slashed to near-zero during the recession. What may be more likely is we get a decent to good report which puts the emphasis more on December but puts serious doubt on this month.For a look at all of today’s economic events, check out our economic calendar.
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The comments come at a delicate time for the Fed.
US stocks rallied Friday as a weaker-than-expected August jobs report eased fears that the Fed would begin its next rate hike soon, since the Federal Open Market Committee is set to meet on September 20-21.
Fundamental economic indicators like the labour market, wages and inflation are sending the Federal Reserve mixed signals, making it hard for policymakers to make rate decisions, says Benjamin Tal, deputy chief economist of CIBC World Markets. Many analysts and industry participants are saying December is more likely for a Fed rate hike if the economy shows sufficient improvement. Low interest rates remain one of the main reasons why banks underperformed lately. “They might be a little complacent now because rates have been so low”. Banks usually borrow at the short-term rates and lend on the long-term rates.
Ultra-low rates also force individual investors to take on more risk (and in many cases, undue levels of risk) in an effort to replace their lost yield. (When the Fed raises rates), we might see a short-term impact to the mortgage rates at that time, but prior to that, you’re going to see, especially with the indications they’re giving the market, you’re going to see more people getting off the fence between now and then. This vulnerable segment of the population increases over time, making the overall USA financial system less stable and creating ripe conditions for the next crisis (for example, when equity markets correct and retired pensioners have no way to recover their losses).
The Fed continues to say that its path will be “data dependent” and focused on its dual mandate of preserving price stability and promoting employment growth. Trade has ranged from $2.0720 to $2.0990 so far.
The Nasdaq Composite .IXIC was up 11.65 points, or 0.22 percent, at 5,261.55.
Fed Chair Janet Yellen said last month that the US central bank was getting closer to raising interest rates, possibly as early as September, saying that the Fed sees the economy as close to meeting its goals of maximum employment and stable prices. But he’s correct – because of course he is – that rates will have to rise.
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Uncertainty and fear would keep the long-term yield anchored while the short-term rates increase, flattening the curve.
