Janet Yellen’s delivery of a moderate rise in the Fed’s funds was bang in line with the market’s bets. She also conveyed a message of dovish commitment to thinking twice before engaging in any further monetary tightening. But despite her efforts to convince the markets that monetary policy will be back to business as usual, the cumbersome heritage of the liquidity glut will severely limit Yellen’s room for manoeuvre.
Analysts and markets alike are already discounting a 25 basis points rise in the Fed’s core rates this week. So investors’ reaction will depend largely on Janet Yellen’s message regarding future rate hikes. A vague gradualism no longer matches the kind of unequivocal commitment the markets are waiting for. Anything short of this could fuel general volatility and unrest.
FOMC members need more evidence that inflation is moving toward their goal and the improvement in the labour market is sufficient and sustainable.
LONDON | Barclays | The US dollar strengthened after the FOMC left the door open for a September move, although it did not provide any strong signal for the timing of the first hike.
The Corner | March 27, 2015 | Data from Europe has shown that the cost of imports have risen for the eurozone’s largest economy, Germany, spelling good news for the country’s partners within the currency union. In the US, data released today will be poured over by Fed chairwoman, Janet Yellen, at a press briefing scheduled for later this evening.
The Corner | March 18, 2015 | Attention will focus on Janet Yellen’s remarks later today, as markets await indication about the Fed’s plans on the issue of a rise in interest rates. Yellen will be speaking after the FOMC meeting, with speculation mounting that US economic projections may be strong enough to warrant a change in monetary policy. Analysts are speculating that a rates hike could happen as early as June, although the current strength of the dollar may delay any rise.
The Corner | February 28, 2015 | The fall in oil prices may yet push the Bank of England to raise rates, which it has been keeping at 0.5% since March 2009. It currently owns the equivalent of 25% of UK’s nominal GDP (see graph above).
MADRID | February 27, 2015 | J.J Fernandez-Figares| Link Securities | Efforts by the ECB to inject money into the euro zone are already showing signs of impact as positive M3 figures offer encouragement ahead of March purchases of sovereign bonds.
MADRID | February 26, 2015 | By JP Marín Arrese | The FED is back in business after years of loose monetary policy aimed at redressing an ailing economy. With the business climate markedly improving, the time is ripe to raise rates. Yet, Janet Yellen has repeatedly warned against a swift hike, instead emphasising the need for patience until the upward trend is solidly anchored. In her testimony before the Senate Committee, she noted that policy would only cover the next two FOMC meetings, sparking speculation that the move could well start in June.
The Corner | February 24, 2015 | Figures published today will give an indication of the current state-of-play in the euro zone, with the release of inflation statistics and final GDP figures from the German economy for 2014.