Octubre 21, 2019

US Fed keeps policy interest rates unchanged, likely to hike in March

05 Febrero 2018, 03:33 | Azura Castelo

Janet Yellen made her last rates call

Janet Yellen made her last rates call

Looking further ahead, the strategists expect the push toward higher yields to continue, which most likely has bearish implications for stocks.

Before consigning the 2018 World Economic Forum to the same wasted time and wasted money bin as its predecessors, it would be fatuous not to add that all the "do-gooding", which is what Davos is about, was swamped by the presence of President Donald Trump.

That was a change from the December statement which had said only that inflation was expected to remain below 2% in the near term and move higher over an unspecified time frame. It's long overdue, but, perhaps, launching it in the context of the biggest tax cuts in a generation may not be the wisest way to start. But how are investors supposed to price this situation? Cabana said the expectations in the fed funds futures market remain for just under three rate hikes this year, with the first one in March.

Indeed, Greenspan famously expressed "shocked disbelief" when lending institutions showed that it was not a matter of self-interest to protect their shareholders' equity.

The investors, who generally ruled out interest rate hikes today, bet on such in March, followed by two more by the end of December. There is thought to be three hikes coming this year however this will be permitting on the strength of US economic news over the next few months.

Yellen has led a cautious approach to rate increases in her four years as chair, and Jerome Powell, who will succeed her next week, has indicated he favors a similar approach.

Yellen leaves the Fed in fairly good standing among economist.

The rubber meets the road in March for Powell's first meeting as Fed chairman. The headline on Morgan Stanley's preview of the January meeting: "Where's the Snooze Button?" Her successor, Jerome Powell, will be sworn in on Monday.

The current target range for the federal funds rate is 1.25 percent to 1.5 percent.

The 12 presidents of the regional Federal Reserve banks rotate as voting members of the FOMC each year, along with members of the Fed Board of Governors who always vote.

The local currency has gained 3.5 percent so far this year as heightened political uncertainty has left the greenback out of favour with a brief US federal government shutdown, introduction of trade tariffs and looming debt ceiling. Nellie Liang, a longtime official in the Fed's Office of Financial Stability Policy and Research, also joined Brookings last year after retiring from the central bank.

Under Yellen, the unemployment rate has declined to 4.1 percent from 6.7 percent in February 2014, while inflation has remained below the Fed's 2 percent target. Yet, many now blame him for having been too permissive with interest rates.

The dollar was up 0.35% to 89.4 on the DXY index this morning. So it is impressive that the Fed has materially lifted rates and tightened policy, as well as settled on and started a plan to shave trillions from its balance sheet, all without upsetting the progress made on growth and improving the labor markets.

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