Evans: One or two rate increases are absolutely reasonable

The US economy is performing "very well", with its continuing growth creating preconditions for one or two interest rates rises this year, according to Fed Chicago chief Charles Evans.
In an interview, Evans scattered fears of weaker inflation, which led analysts to forecast only one, or even none, raises in interest rates by the end of this year.
We may see one or two raises, Evans said. In December, Evans publicly opposed the rise in interest rates on the part of the Fed. Since then, we have seen two interest rates rises - one in April and one in June.
Evans, however, said the US economy was extremely strong, and its performance made him confident that inflation would hold or even cross the target of 2% while the unemployment rate would remain at its low levels. The growth of the world's largest economy is expected to range between 2.5% and 3% this and next year.

Powell: The process of normalizing the policy of the Fed is without prejudice to the financial markets

The Fed has made it clear to the markets that it intends to raise the interest rate gradually, and investors are probably not surprised by the actions of the Central Bank, said the head of the Federal Reserve, Jerome Powell.
The process of normalizing the Fed's policy is taking place without damage to the financial markets, and the expectations of traders regarding the future policy of the Central Bank seem to be in good agreement with the expectations of the Fed's management, he said at a conference organized by the International Monetary Fund (IMF) and the Swiss Central Bank.
According to Powel, if the situation in the economy meets expectations, the markets are probably not going to be surprised by Fed's actions.
The Fed raised the rate six times since December 2015, each time by 25 basis points. The last time the rate was raised in March 2018 - up to 1.5-1.75% per annum, and the leaders of the Federal Reserve made it clear that they expect two more hikes this year.
The gradual increase in the rate helped to maintain the Fed's stimulating policy, which supported the growth of employment and economic recovery in the US, and also contributed to a gradual increase in inflation.

Deutsche Bank: Inflation is the biggest threat at the moment

Forget the geopolitical tensions, the strikes in Syria, or the trade wars between the US and China. You have a much greater reason to worry if you invest in stock markets. This is warned by the experts of the leading German bank - Deutsche Bank.
Traditional inflation measures in the US show a sustained rise in consumer price inflation in recent months, following an anemic price increase nearly a decade after the end of the recent financial crisis.
At a time when the Fed has steadily upgraded the economy and the economy is recovering at an unsatisfactory pace, uncertainty has conquered inflation, which is the focus of almost all investors.
We are waiting for inflation, literally over the last nine years - since the end of the recession in 2009. Maybe you will ask yourself the question - Why is it now? We have not seen inflation over the past few years, so what has changed today? - commented experts.
And the answer to this question can be found in the weak US dollar. The dollar index was moving at a 90-point high for most of this year after falling freely over the past year.
This was a natural consequence of fiscal expansion over the last decade, which has led to a overheating of the US economy, a narrow labor market and price pressures, in light of a possible trade war between the US and China.
Expectations for higher inflation are consistent with consensus expectations. About 82% of fund managers, gave their opinion in a Bank of America poll earlier this month, expect inflation to accelerate next year. This is just below the pre-crisis levels of 86%.
According to the Labor Ministry, consumer prices have risen 2.4% y/y last month, or their fastest growth in 12 months. By abolishing volatile food and fuel prices, inflation stood at 2.1%.

Dollar: the announcement of the events for February 27 - March 3 (2)

Next week, the focus of the global financial markets will be on the speech of the US president Donald Trump to Congress, which will take place on Tuesday. Market players expect to get more information about tax reform, deregulation of the economy and spending on infrastructure projects.
For the next week are also planned several speeches of the leaders of the Federal Reserve System. The most important will be the speech of the Fed's chairman Janet Yellen on Friday.
In addition, the attention of market players will be attracted by the a revised value of US gross domestic product for the fourth quarter, which will assess the state of the US economy. The UK will publish data on business activity in the private sector, and the focus in the euro area will be inflation data.

Dollar: the announcement of the events for February 27 - March 3 (1)

On Friday, the dollar rose against the basket of other major currencies despite weak sales data for the US homes. Investors expect the US president's speech.
The US Dollar Index, which shows the value of the dollar to a trade-weighted basket of six major currencies, by the end of the trading session rose by 0.17% to 100.12. For the week, it rose by 0.14%.
On Thursday, US Treasury Secretary Steven Mnuchin said that he would like to hold a large-scale tax reform through Congress before the holidays in August, but there is still a lot of work.
According to published on Wednesday minutes of the last FOMC Committee meeting, the Fed's management considers pretty soon to raise interest rates if the economy will develop in line with expectations.
However, the published protocol also listed the Fed's uncertainty about future economic policies of Trump and pointed to the risk of strengthening of the dollar.

How likely is a bankruptcy of America? (Part 5)

A bankruptcy on US government debt is a serious threat to the economies of the world, but we do not have to be afraid of it any time soon. Now lenders are more concerned not so much of the size of public debt, as an  America's capability to service it. However, the difficulty can appear only in the event if one of the largest holders of US bonds will start to gradually get rid of them. This trend is already defined, but its pace is not sufficient for a soon detection of the debt crisis. In addition, the US dollar is right to retain the status of a "reserve currency" and get rid of this status would not be far-sighted decision amid world uncertainty.

How likely is a bankruptcy of America? (Part 4)

But maybe it's not all so terrible? Technically America can pay off its debt, no matter how large it is, at any time. The thing is, that the very government debt is denominated in US dollars, which the Federal Reserve can print as much as necessary and pay. Of course, it will cause many other problems such as an increase in inflation and a removal of the dollar from the pedestal of the world's reserve currency. Yet in this way the debt can be paid off, and it gives hope to the creditors that the probability of a sudden default is very low.
Since the election of President Donald Trump appeared another alarming fact - yield of US Treasury rushed up and is now close to multi-year highs. This increased the cost of debt service, and one of the priorities of the new government should be the solution to this problem.

How likely is a bankruptcy of America? (Part 3)

Now the US national debt exceeds GDP. For clarity, it can be compared with the most difficult moments of history. For example, in 1948, according to the Marshall Plan, to rebuild the economies of western Europe took 12 billion USD, Or 4.3% of US GDP. Even in 2008, at the peak of the mortgage crisis, in order to divert the leading banks in the country from ruin it took 700 billion USD, or more than 5% of US GDP. It turns out that America is increasing the amount of debt as fast as if there were all financial, military, and natural disasters at the same time. In fact, nothing like this, of course, does not happen. According to the financial media, the economy returned to normal, and everything is so good that even the Fed is going to raise the key rate. In such circumstances, the country must reduce debt rather than increase its rate.
Of course, all this can not do else, but worry the creditors. USA is the leading economy in the world, and if suddenly one day, the country decides not to pay its debts, it could lead to an unprecedented crisis.

How likely is a bankruptcy of America? (Part 2)

Inside America there are political forces who are concerned about the growth of public debt not less than external lenders. The Republicans in the Parliament actively impeded increase government debt ceiling in 2013. In result the annual budget for the next year was not accepted, there wasn't enough money to pay for the work of government departments, after which the government virtually stopped its work for 16 days. Situation was close to default, and just one day before its announcement Republicans surrendered their positions, the ceiling of external loans was removed and other than that it's been declared a moratorium on the upper limit of public debt until March 2017. It may be noted that since 2013 the rate of growth of public debt have increased, and as already mentioned, new records were set.
On what this money is spent? The biggest part of expenditure in the budget - it is a social and health insurance. These costs exceed those large objects such as security and defense all together. They consume a large part of the tax, but, despite this, the money is still not enough, and the government has to borrow more. In fact, the quality of social security and health insurance are far from ideal, and yet the funding of their budjets suffer gradual depletion. Judging by this picture, we can say that the money simply dissolve.

How likely is a bankruptcy of America? (Part 1)

On September 30, US 2016 fiscal year was completed. It was one of the brightest in the history of world's largest economy. Unfortunately, the most spectacular is the huge increase in the national debt, by $1.4 trillion dollars, the total amount of which it is now 19,573 trln. dollars. The very figure seems daunting, but even more excitement is that the pace at which it grows.
As the pace of growth this is the third year after 2009 and 2010, which hit the midst of the subprime mortgage crisis. There was also another record of US debt growth, in August it grew by 151.5 billion dollars, which was the highest monthly increase in the country's history. On the debt growth rate says more the fact that for less than the last ten years, America has increased its national debt by nearly $10 trillion, and it is equivalent to the amount taken by the previous two hundred years of existence of the country. Most investors around the world are concerned about this situation, as in the case of default on the obligations of the United States in the world can happen serious financial disasters.

Fed did it! (Part 2)

Economic forecasts

The Fed also released their economic forecasts for the next three years.
The controller assumes that the federal funds rate could rise to 1.375% in the next year; to 2.1% in 2018; and to 2.9% in 2019.
Current average rate is at around 0.625% after raising rates by 25 basis points range to 0.5-0.75%. Thus, the Fed raised their expectations for interest rates and the number of their increase in 2017. The Fed now plans next year to increase the rate three times, by 25 basis points for each increase, while in September, the regulator wanted to raise the rate in 2017 only twice.
The US currency has responded to this sharp rise. By 21.20 GMT the dollar rose by 0.8% against the euro to 1.0530. The dollar index rose by 0.9% to 102.05.
Fed expects the growth of GDP to be 2.1% next year and will remain at approximately the same level until 2019.
The unemployment rate will fall to 4.5% in the period from 2017 to 2019., according to Fed's forecast. Inflation will rise to 1.9% next year and will remain at this level over the next two years.

BTMU waiting moderate growth of EUR/USD, but not more than 1.15

Until the meeting of the FOMC on September 21 is less than two weeks and the only thing that can improve the current low expectations for a rise in US interest rates, is the publication of strong data from the US, according to analysts.
Among the important statistics that will come out next week, the most significant is data on retail sales that will come out on Thursday and CPI on Friday.

Today are expected the speaches the heads of the Federal Reserve Bank of Boston - Rosengren and Dallas - Kaplan. As Rosengren is voting member of the FOMC, his speech seems to analysts more important.

The change of rhetoric of Rosengren to more decisive can significantly affect market expectations, say analysts. His last speech was on 31 August and then he made some interesting comments, that expressed concern, that the too long period of very low interest rates may affect the market.

Currently, analysts do not see any prerequisites for changing the current situation on the currency market and are waiting for the growth of EUR/USD, which however will be limited to the level of 1.15 dollars, they predict.

Autumn melancholy...

In the beginning of autumn, the cold rain washed over investors summer bodies, who heard the words of hope of Janet Yellen about the growth of the US economy and expediency of raising interest rates in September on her last official speech on 26 August.
Economic Indicators, published by the 1st and 2nd of September of the last week: PMI index in the manufacturing sector, which declined from 52.6 to 49.4, and data on changes in the number of people employed in non-agricultural sector, with the creation of jobs 151 thousand, instead of forecasted 180 thousand, cooled the ardor of traders and forced them to doubt the reality of the intentions of the Committee on the open market operations of the Fed.
Against the background of a stable Eurozone economic data, the US dollar, together with its economy, currently looks like an outsider in the competition with the EUR. On Friday, before the long weekend in the United States, the EUR/USD failed to demonstrate its possible potential for growth, and, after a lull in world markets at the beginning of the week, yesterday the pair went to conquer the "northern" tops.
On Tuesday, European stock markets opened higher, the euro also demonstrated positive dynamics. Repulsing from 1,1120-1,1140 support area, the price of EUR/USD rose above 1.1250.

The US economy grew surprisingly weak in the second quarter

The US economy grew surprisingly weak in the second quarter after anemic growth at the beginning of the year. The cause were weak business investment, which largely offset fairly solid increase in consumer spending. This shows a preliminary assessment.
Gross Domestic Product of the US, which is the most common measure of the production of goods and services, increased in the second quarter by 1.2% with an average forecast of accelerating growth to 2.6 percent. Meanwhile, the final data for GDP growth in the first quarter fell to 0.8% from 1.1%.
Consumer spending, a key engine of the economy, rose in the second quarter by 4.2% following weak growth of 1.6% at the beginning of the year. It should be kept in mind, that the domestic consumption forms more than two-thirds of the growth of the world's leading economy. Although expectations were for an even better growth of 4.4%, the increase in consumer spending of 4.2% was the best since the end of 2014, the cost of purchases of goods increased by 6.8%, while those for services - by 3%.
On the other side are business investments, which shrank in the second quarter by 2.2% after falling by 3.4% at the beginning of the year.
Meanwhile, exports in the second quarter rose by 1.4% while imports fell by 0.4%, which means that international trade has added 0.23% to the growth of the US economy.

The US economy surpassed forecasts

The US economy presented a pleasant surprise to analysts on Friday. The data on the growth of gross domestic product in the last quarter of 2015 was revised from 0.7% to 1% in expected correction downwards to 0.4 percent.

The value of stocks increased by $81.7 bln. during the period, instead of the previously calculated 68.6 billion.

However the consumer spending slow its growth to the spring and fall to 2% transient estimates of 2.2%. Investments in equipment decreased by 1.8%, while investment in non-residential buildings are down by 6.6%.

The trade balance takes 0.25 percentage points from economic growth rather than calculated earlier 0.47 points, as exports shrank more sharply, by 2.7% instead of 2.5%, but imports fell by 0.6% in the previous estimate of growth of 1.1 percent.

According to analysts, Friday's report may not be as good news as it seems at first sight. Higher volume stocks could force businesses reduce the pace of production at the beginning of 2015. Separately, it is possible that the data are a sign that companies are facing problems to sell their products.