Tuesday 24 May 2016

Does Fed bluffing?

From the published protocol of their meeting in April, Fed became clear that we could see a rise in key interest rates in June.
Similar opinion express several regional directors of the Federal Reserve. They predicted that there may be increased to three by the end of the year. There's no need to comment that it surprised market participants. As a result, the chance for raise in June rose from 19.00% to 34.00%.
Economic indicators that support such an increase are unemployment and the inflation rate.
Unemployment in the US is 5.00%, which are levels of practically full employment.
The annual inflation rate was 1.10 percent, as the Fed believe that it can easily reach their desired 2.00%.
Timid seems the growth of GDP, which for the first quarter is 0.50%. This may be a seasonal trend, because a decrease in GDP for the first quarter is observed in recent years. If so chances for promotion are growing. Unfortunately there isn't enough data to know for sure that low levels of GDP for the first quarter are seasonal.
It's easy to assume that the Fed will comply with the political situation in the country. The aim of course will have as much as possible less impact on the upcoming elections. Primaries continue until June 14, when the last voting will be Democrates in Washington, DC. The Fed meeting will be held on June 14 to 15. So the institution will be able to announce any increase on 15.06, but it will be too fast after the primaries.

Whether Fed bluffs - given the clear and simple communication style that J. Yellen have imposed - probably not.



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