On Wednesday, September 26, the US Federal Reserve raised its base rate by 0.25%, to a level of 2-2.25% per annum. This decision was made by the Federal Reserve's Open Market Committee following a two-day meeting in Washington. Previously, the American regulator raised the rate in June to 1.75-2%, and during a meeting in early August it maintained the status quo.
According to experts interviewed by RT, the Federal Reserve’s actions were expected. In their forecasts, analysts excluded the possibility of the rate remaining at the same level and highly assessed the likelihood of it reaching the range of 2-2.25% per annum. Moreover, according to the Chicago commodity exchange CME Group, immediately before the meeting of the US Central Bank, 95% of respondents expected a rate increase of 0.25%, and only 5% of respondents - by 0.5% (to 2.25-2.5% per annum).
The Fed's decision was supported by economic statistics from the United States. As follows from the materials of the US Department of Labor, in August core inflation in the country (excluding prices for energy and food) accelerated to 2.2%, but still remained close to the Fed target of 2%.
Let us recall that the global financial crisis forced the Federal Reserve to soften monetary policy and lower its interest rate. Thus, on December 16, 2008, a record low range was set - from 0 to 0.25% per annum. This measure was taken to stimulate economic growth during the recession - loans became cheaper, and, consequently, the level of consumption and investment began to grow.
The American central bank took a course towards increasing interest rates only in December 2015.
“During the 2008 crisis, the United States was the first to introduce a quantitative easing program, beginning to supply free liquidity to financial markets. In the current situation, in order to prevent overheating of its economy and avoid inflating another “bubble” on stock exchanges, the Fed is systematically and carefully following the path of increasing the interest rate,” explained Finam Group analyst Sergei Drozdov in a conversation with RT.
In its monetary decisions, the Federal Reserve primarily relies on the inflation rate in the country. After a protracted easing policy, the rate hike is intended to curb the acceleration of consumer prices. Andrey Bezhin, director of consulting and brokerage services at QBF, spoke about this in an interview with RT.
“The Fed needs to keep the rate at the inflation level (this is a neutral level) or slightly higher to prevent prices from rising. A lot of money has been printed in the system since 2008, and economists naturally fear that this situation will sooner or later provoke hyperinflation,” Bezhin noted.
As the expert emphasizes, the Fed itself so far notes the absence of serious inflation risks. However, concerns about accelerating prices remain. First of all, they are related to what is observed in the world today, as well as Donald Trump’s tax reform. Although most experts today predict only a short-term impact of these factors on inflation in the United States, some economists believe that the consequences could be long-term, Bezhin added.
Forex Club Group analyst Mikhail Rytik emphasized that the American economy today is suffering from trade, so the country needs new investment resources. Tightening monetary policy, in turn, makes it possible to attract additional capital. At the same time, this situation leads to an outflow of funds from emerging markets.
“When rates are raised in the short term, the currencies of developing countries traditionally come under pressure, as investors abandon investments in them in favor of more reliable US government bonds and deposits in American banks (they also raise rates following the Fed),” the expert emphasized.
Without unnecessary movements
In a conversation with RT, Andrei Bezhin recalled that in its latest forecasts, the Fed promised to carry out four rate increases in 2018. The first two were made in March and June, so analysts expected to see the rate increase twice more - in September and December. Against this background, the markets had already been prepared for a long time, and the Federal Reserve’s decision did not come as a surprise to them. That is why experts interviewed by RT do not expect a strong reaction from financial platforms and world currencies to the results of the Fed meeting.
“The dollar is likely to strengthen moderately - expectations of an increase are already largely included in current prices. The US stock market may react with a slight correction, and the dynamics of emerging markets will likely be neutral - the currencies of these countries may continue to strengthen under the influence of internal factors,” added Anton Pokatovich, chief analyst at BCS Premier.
At the same time, experts emphasize that any other action by the American regulator regarding the base rate could provoke serious concern among investors. For example, according to Pokatovich, a sudden increase of 0.5% instead of 0.25% would lead to panic among investors and increase the fears of players about the stability of American markets.
“The rate would hardly have been increased by 0.5%, as this would have led to sharp growth dollar exchange rate. Such a situation would have a negative impact on the state of the American economy, which does not benefit from a too strong dollar,” added Mikhail Rytik.
At the same time, in the long term, the national currency of the United States can still continue to gradually strengthen. According to Sergei Drozdov, as long as the Fed moves away from a soft monetary policy, the dollar will remain more attractive relative to other world currencies.
“As for the reaction of the Russian currency, in my opinion, an increase in the interest rate by the American regulator is unlikely to have a serious impact on the ruble, since in the current situation of the national currency, despite high oil prices, it largely depends on the sanctions agenda, within the framework of which there remain risks of the introduction of further restrictions by the United States regarding Russian government debt,” the analyst explained.
In general, according to experts surveyed by RT, following the Fed whole line countries (especially developing ones) will also continue to raise their own interest rates.
The next meeting of the US Federal Reserve will take place on November 7-8. As follows from CME Group data, today most market participants expect a rate increase to 2.25-2.5% in December.
Federal Reserve System following a meeting of the Committee on open markets expectedly increased the base interest rate in the US by 25 bp, to 1.75-2%. The American regulator explained the decision by the fact that the country's economy and economic activity are demonstrating steady growth rates, and the labor market continues to strengthen. “Family expenses increased, while investment in fixed assets continued to grow,” the communiqué from the Committee meeting noted.
Still, Fed Chairman Jerome Powell noted that “concerns about changes in trade policy are growing. We're starting to hear about this from companies delaying investment and hiring."
The Fed also emphasized that the country's monetary policy remains accommodative. The Committee is targeting inflation at 2% and, judging by the statement of Federal Reserve Chairman Jerome Powell, is not afraid of its reduction. The Fed is expected to raise rates two more times by the end of this year. Next year, the Fed is scheduled to raise rates three times.
An increase in the Fed key rate means an increase in prices for goods and services in the medium term, says Georgy Vashchenko, head of the operations department on the Russian stock market at Freedom Finance Investment Company. Loans in the economy will become more expensive. But the effect on the American economy and other countries will be different. Rates are low in the US now, and international banks are funded in the US whenever possible. Producers of commodities in Russia, Saudi Arabia and other countries prefer to borrow in dollars, since their revenue is in dollars.
The cost of their production will increase due to rising costs of equipment and servicing loans, and profitability may decrease due to competition with American manufacturers. Oil production in the United States is growing, it has already reached almost 15 million barrels. per day, an increase of 12% compared to last year.
How can one not understand?
For Russia, as for other countries, a rate increase in the United States has more negative consequences than advantages, says Georgy Vashchenko. Russia has a lower investment rating, higher inflation and more risks, which is associated with the volatility of prices for raw materials, dependence on foreign markets and raising capital. Accordingly, investors want to receive O higher profitability compared to dollar instruments.
The Central Bank is forced to maintain rates on high level to ease the pressure on the ruble. And a rate above 6% hinders economic growth. Despite the rise in oil prices to almost $80 per barrel and the relative stability of the ruble, as well as low inflation, GDP growth this year will probably be less than 2%, Georgy Vashchenko expects. Russia is among the laggards among the group of BRICS countries. The Central Bank will most likely leave the key rate unchanged on Friday.
In general, the Fed’s increase in the reserve rate is a long process that can be observed in the last few years, reminds, in turn, CEO IC "Kharitonov Capital" Maxim Kharitonov. The American economy is indeed doing well, mainly as evidenced by rising inflation and falling unemployment. This is quite logical after the extensive quantitative easing (QE) programs, which by historical standards ended quite recently, and consisted, in simple terms, of pumping money into the economy through the mechanism of money emission.
According to the analyst, this mechanism is inertial, it has accelerated quite strongly, raised the prices of many assets, and therefore now the Fed is starting to slowly, carefully stop it so as not to overheat the markets. Increasing the reserve rate is one of the methods of slowing down the economy, if we speak in simple words, it makes borrowed money more expensive, which means it reduces the appetite of firms and investors for rapid growth and the risk that accompanies such growth.
What is important for markets is not only today’s specific rate increase, but also the fact that there may be two more such increases this year. That is, the rate could reach 2.5% already this year. And also that in 2019 the rate may be raised 3-4 more times. And we can assume that by the end of 2019 it will grow to 3.5-3.75%. At this rate level, international investors will be inclined to invest in American companies and their securities, especially given Trump's tax reform and new tariffs on raw materials that should give American producers an advantage.
This trend means, explains Maxim Kharitonov, that money that were there before invested in developing markets, will go from there to the US market, as well as the EU. For the ruble and ruble assets, unfortunately, this means the prospect of loss of interest from international investors and speculators. The smaller the spread between the Central Bank key rate (7.25%) and the Fed reserve rate (1.75-2%, and in the future - 3.5-3.75%), the less attractive carry trade operations that support the ruble are. With the Fed rate increase, according to Kharitonov, the ruble will fall lower and lower against the dollar. By the end of 2018, you can expect 68-69 rubles per dollar, and in 2019, it will go beyond this range, to 73-75 rubles.
The US Federal Reserve raised the base interest rate by 25 bpsbasic pointov, up to 0.5-0.75percent per annum. “In light of realized and expected conditions in the labor market and in the field of inflation, the Committee decided to raise the benchmark for the federal discount rate. The approach to monetary policy remains accommodative and supports further improvement in labor market conditions and a return to two percent inflation,” the American regulator said.
Lessons from crises: do countries learn from mistakes?
In December last year, the financial regulator raised the rate by 25 basis points - from 0-0.25 percent to 0.25-0.5 percent. Previously, the basic discount rate was raised only in June 2006, and from December 2008 to December 2015 it remained practically at zero - 0-0.25 percent, which was accompanied by the largest issue in US history. Now the Fed predicts three more interest rate hikes next year, although previously it expected two. The Fed also raised its forecasts for GDP and unemployment by one-tenth of a percent, and for inflation by two-tenths in 2016.
Almost none of the analysts doubted that the US Federal Reserve would raise rates, which would lead to an influx of currency into the country, the purchase of securities and a strengthening of the dollar. The site talked about how this decision will affect the economy political scientist and publicist Leonid Krutakov.
— How will Donald Trump implement his promises in the new conditions? After all, with The real dollar is a decline e American exports, which is beneficial primarily to China, and uv increase in debt.
— Not an increase in debt, but an increase in debt servicing. Their debt arises from deficits, both trade and budget. They already have a colossal one. Therefore, the debt will grow, that's for sure. And Trump will increase it, they have nowhere to go. In fact, now in the United States there is a struggle for a magic machine that turns US debts into investments for the world.
The most important trick that the Americans managed to achieve, starting with the conclusion of the Bretton Woods agreements, is that the country - the main debtor of the world - is its main creditor. That is, they turned their debts into loans for other countries. And that's why all the struggle is here. Will they be able to maintain this debt model or will they fail? If it fails, there will be an internal explosion of this bubble. Last time they raised the rate by 0.25, but the market practically did not react to this. Because the debt is colossal due to interest.
Fed rate - . Therefore, it turns out that they pay extra to those who took money from the United States. It is not the one who took the loan who pays, but the one who borrowed. This is generally an amazing situation, and the United States needs to solve this problem first of all, because they are eating up the income of the future, pension funds, social funds that they have. Because if it’s minus, it means they are spending what they have saved up. That is negative rate kills the future. And America is now squeezed. On the one hand, there is a colossal external debt that must be serviced, on the other, a low Fed rate.
In fact, it’s like you bring money to a bank, but you pay that bank for holding that money. And in Europe it’s the same, there is also a negative Central Bank deposit and a zero ECB rate for inflation.
It turns out that this is some kind of new economy, which still needs to be seriously comprehended, to understand how it works and where it leads. That she's blowing bubbles, of course. Therefore, America is now between two millstones. And even the raised rate is still below inflation. And America will continue to eat itself.
— Trump intended to change the leadership of the Federal Reserve. What can Trump do with this system? How does the Fed influence global finance and the central banks of other countries?
— There was one president in US history who tried to take away the investment function from the Federal Reserve and subordinate it to the US Treasury, so that the US Treasury would deal with it directly. It was Kennedy. The Federal Reserve System is not subordinate to the US Administration, it is a commercial structure formed by 13 private banks, where, in particular, German capital is very seriously represented, because it is one of the parties to the agreement on the creation of the Federal Reserve System. There was a German banker who later became Hitler's main banker. The Fed has a very complex system. But something else is more important here - under this system created by the United States, they actually forced all Central Banks to withdraw from their state status - both European and Russian.
That is, our Central Bank is semi-formal in nature - semi-private, semi-state. It seems to be located on the territory of Russia and seems to be subordinate to Russia, but at the same time it is not formally subordinate to it, but is actually a division of the Federal Reserve System and prints derivatives for the dollar.
This is not an independent unit, because it is not provided with internal industrial resources, but with external dollar reserves. There was a substitution of national monetary units, and thanks to this, a system became possible for the United States when they turned their debt into investment.
That is, the United States prints money on credit and gives it to everyone - Russia, China, etc. Accordingly, these countries use it as investment. Such a magical “cook a pot, don’t cook a pot.” In America now this problem is the most important, because they are stuck in terms of expansion.
This system can only work when the dollar zone absorbs new capital assets, new economies. While privatization was underway of Eastern Europe, Russia, Iraq and Libya were being captured, while they provided the dollar zone with new real industrial and raw material assets, this system worked.
But as soon as they politically ran into Russia, Syria, as soon as China told them: we will not give up the state status of the People’s Bank of China (our internal financial system they protect from the external market) - this became a huge obstacle.
This year, according to which China was obliged to make the People's Bank a non-state, the same as we have in Russia, a division of the Federal Reserve System. But China, at the recent APEC summit in Libya, frankly told Barack Obama that it would not do this. Now the US faces another dilemma. Or declare China a non-market economy and exclude it from the WTO - but then so many contracts collapse that the United States does not know what to do. Or not give any reaction, but the States also cannot behave this way and do not know how to react.
Now the United States has so many problems that it’s scary to imagine how they will get out of this. This is a protracted, severe crisis. Trump is the harbinger of this crisis, or rather, the first rumble of thunder of the crisis. Will he be able to do something, reconstruct this system, or will it go on a rollercoaster ride, as Clinton wanted, with further global expansion? At least, Trump announced that there would be no expansion, but the creation of his own project on controlled territory - in Canada, Mexico, Europe...
For them the situation is twofold. This is Triffin’s paradox; he formulated it back in the 1960s. On the one hand, the dollar is a global currency - reserve and settlement, and on the other hand, it carries national character, is used internally and is subordinate to national interests. At least that's what is declared.
So when you take a dollar as your measure domestic policy, you must understand that the US national interests are embedded in the dollar. Because money is not a fetish, not golden bars that can be exchanged for anything. Money is government obligations.
— Is it still as dangerous to engage in a fight with the Federal Reserve today? And how can the USA stillgutprevent the collapse of the dollar bubble?
— The financial overhang is 10 times the total global product. At the same time, not the entire total world product is subordinate to the dollar and is located in the dollar zone. A lot of things happen through swaps, China through barter works with Africa and the Middle East in many transactions. When we calculated the turnover of China and Africa, it turned out that in terms of metals they make the second turnover of the London Metal Exchange. This is actually a hidden turnover.
Of course, we must understand that with this dollar overhang they must either absorb the whole world or come up with some new unconventional assets. This was stated in the services agreement. For example, about the need to privatize the housing and communal services sector, state defense procurement, housing and communal services, education, and medicine.
These are the assets that England, for example, is proud of: education and medicine are assets that are not yet traded. They either need to be brought into circulation to support the dollar, because money requires assets more than assets require money. Assets need money for development. And barefoot and empty money needs assets to fill it, otherwise it will explode.
Therefore, there are two ways: capture outside world— China, Russia, continued expansion, seizure of energy resources and transfer to their balance sheet. Because now Westerners are not allowed to have more than 20 percent of shares within our companies.
This was one of the terms of the agreement after YUKOS - up to 20 percent, please buy, trade on your exchange. For example, BP bought 18 percent of Rosneft. Now BP can trade all of Rosneft’s reserves on the stock exchange as its own, putting it on its balance sheet. And this is a colossal increase in capitalization. The formal principles approved by the United States that we can put on the balance sheet do not mean that they can actually manage these resources. We saw this in the Middle East, we also see it in Russia, which is now reorienting itself to China and India for gas and oil supplies.
Therefore, the United States has two options. Either expansion, but it was Clinton, or they limit their project to the Western Hemisphere, creating the so-called Great West. Then they will need to carry out new wave privatization, as in South America, and in Europe, where it will be possible to privatize the housing and communal system, education, all sorts of social functions up to the defense order, stipulate that the state is prohibited from taking protectionist measures in the field of government procurement.
That is, let’s assume that we have joined these agreements. Then General Motors wins the contract to supply cars to the Ministry of Defense, and we cannot do anything. These will be the new rules that are dictated there. This is not the case, so the United States is balancing on the brink in terms of rates, walking by a thread.
The devaluation factor for the development of the dollar, which they have been using for a long time, has also been exhausted. They overstrained themselves trying to break Russia when they drove the price of commodities to the limit. They've inflated the corporate, speculative stock market so much that they don't know what to do with the money.
Giving money to Russia or China is the same as financing a competing political project. It’s not even a matter of economics, but the fact that “if we give money to Putin, he will drill wells, and with this money from the sold oil he will set up missiles and all sorts of aircraft, and then in Syria he will give us a kick in the tail.” That's the problem for them.
And the money has been accumulated, lying in bags, but they cannot push it onto the market in developing countries, in Asia, in Russia, because they are politically prohibited. No one will pump up their competitor, but they don’t have any internal reserves where to develop, or what to invest this money in. They do not have their own industry, only service services - a service economy, where show business and supermarkets flourish, but there is no industry.
Or they must absorb some new assets and make them marketable. Hence such exotic topics - they passed a law that American companies have the right to develop natural resources on asteroids, on other planets. That is, it seems like nonsense from the realm of idiocy and Ward No. 6. On the other hand, this allows them to somehow verbally stimulate the financial market, which does not know where the money is. We have swelled with this huge bubble, but what to do with it?... Here is the problem - both debt and a financial bubble at the same time.
They themselves created such a colossal problem for themselves. They hoped that they would fail, break through the defenses of Russia and China and break into these markets. Back in 2008, the Americans wanted to open up the markets of Brazil, India, and China, but they said that we would not open our domestic market for you.
When this political round failed, then their financial crisis hit us, and the whole story of pumping up the economy, quantitative easing, both in the US and in Europe began. Because they needed to pay for the losses that their banks suffered from the inability to work with China, Brazil, India and Russia on the terms of these countries, and not on the terms of the United States.
Interviewed by Galina Tychinskaya
Preparedfor publicationYuri Kondratyev
Despite the protests of Donald Trump, the US Federal Reserve raised its key rate by 0.25 percentage points. – up to 2.25–2.5%. This is the fourth increase in the US benchmark interest rate since the beginning of the year and its highest value since the beginning of 2008. Investors were waiting for such a decision, but hoped that the Fed would take a break next year - after the speech of Fed Chairman Jerome Powell, the markets fell. For Russia, the Fed’s decision means increased pressure on the ruble, and in the longer term, a further increase in the Central Bank rate.
Read more. The Fed raised rates for the fourth time this year, to the highest levels in last decade. In total, since the beginning of the monetary tightening cycle in 2015, the Fed has increased it eight times.
- The Fed's decision completely coincided with economists' forecasts. If the rate were kept at the same level, the regulator would demonstrate that it depends on market turbulence and responds to pressure from Donald Trump, who since the last Fed meeting has constantly called on the regulator to change policy. On the eve of the Fed meeting, he wrote tweeted: “I hope the Fed reads today's Wall Street Journal opinion piece before making another mistake. Don't let the market become even less liquid than it is now. Get a feel for the market, no need to rely on meaningless numbers. Good luck!". The column mentioned by the President states that US macroeconomic indicators and signals financial markets should push the Fed to take a pause in the rate hike cycle. But leaving the rate at the same level, the regulator would send the market a signal about the expected slowdown in the US economy, which traders fear most, the FT wrote.
- Forecast for rate growth for 2019. At the same time, investors clearly hoped that the Fed would reconsider its plans to raise rates for next year. Against the backdrop of falling oil prices, economic slowdown in China and the EU, as well as expectations that the effect of Trump’s tax reform will fade away, the Fed is unlikely to be able to raise rates more than twice next year, Reuters wrote yesterday. Later at a press conference, Powell confirmed these expectations - despite the fact that a third of FOMC members still expected three rate hikes next year, Powell said that the regulator was likely to raise it only twice . But this was not enough for investors.
Market reaction. After Powell's speech, the S&P 500 index lost almost 3% in an hour, later recouping about half of the decline, about two-thirds of the securities included in the Stoxx Europe 600 index also fell in price, and the price of WTI oil fell below $48 per barrel at trading in New York. The stock market's reaction to the Fed's announcement turned out to be the worst compared to all other statements by the regulator since 2011, writes Bloomberg: analysts surveyed by the agency say that investors considered the Fed's decision to be wrong.
- Reasons for the fall. Investors expected the Fed to raise rates this time, but were not prepared for the fact that the regulator was going to continue doing so next year - despite the volatility prevailing in the market and concerns about a slowdown in the global economy. “The U.S. economy is still strong, but forecasts are for a slowdown, as well as a slowdown for the broader global economy,” said Brendan McKeana, strategist at Wells Fargo. “Investors believe the Fed misjudged the situation,” Kyle Rodda, an analyst at IG Group, told Bloomberg. “We are probably entering a stage where markets are getting used to the idea that they need to prepare for a protracted decline next year.”
- Powell's speech. At a press conference after the announcement of the Fed's decision, the head of the regulator, Jerome Powell, tried to send a signal to the market that further tightening of monetary policy may not follow. In particular, he noted that key rate has already reached the lower limit of the neutral level range, and significant uncertainty remains about a further rate increase. Powell several times called the economic growth forecast for next year “positive” and the US economy very healthy. But at the same time, the Fed announced that it had worsened its GDP growth forecast: to 3% instead of 3.1% in 2018 (this is still the best figure since the crisis year of 2008) and 2.3% instead of 2.5% in 2019.
How the Fed's decision will affect Russia
- Rate increase may lead to further weakening of the ruble and spur the exit of investors from Russian assets, says NES Associate Professor of Finance Oleg Shibanov. Investors, seeing rising rates, and knowing that the Fed will not raise them for some time, will move into American assets. But sales in the market will be small, because investors have exited Russian assets before, the expert believes.
- The outflow will become more intense than all other things being equal, notes Anton Tabakh, managing director for macroeconomics at Expert RA. And in the long term, tightening Fed policy will require Central Bank more intensive rate hike to prevent capital outflow, he believes.
Liana Faizova
Obliges any bank in America to form a certain amount of cash reserves. They are needed to conduct transactions with clients. This is necessary in case most clients suddenly want to withdraw all their deposits. IN in this case The banking institution may simply not have enough finances, and then, most likely, another banking crisis will occur. It is because of this that the Fed sets certain limits for the amount of required reserves, the size of which is affected by the Fed rate.
What is the Federal Reserve System
Every day, banks carry out a colossal number of transactions, and each of them tries to increase their volume in order to increase their profit. Sometimes clients come without warning and rent a large amount Money, as a result of which the level of required reserves of a financial institution decreases and ceases to comply with the instructions of the Federal Reserve. This will cause many problems for the bank in the future.
The Fed interest rate is the rate at which the Central Bank issues loans to American banks. Through these loans, financial institutions increase the level of reserves in order to comply with Federal Reserve requirements.
In most cases, banks borrow from each other, but if banks are unable to help their “colleague,” the latter turns to the Fed. According to the law, this loan must be returned the next day. The Fed has a negative attitude towards such loans. If they also become more frequent, the Fed has the right to tighten requirements for required reserves.
Why do you need an interest rate?
Its necessity is as follows: it serves as the basis for calculating other rates in the state. Moreover, Fed loans are low-risk loans because they are issued only for one night and only to banking institutions with excellent credit histories.
If we consider the stock markets, an increase in rates is an increase in the cost of capital of an organization. That is, for enterprises whose shares are traded on the stock exchange, this is a negative point. It's different for bonds - raising rates leads to lower inflation.
The foreign exchange market is a little more complicated; here the Fed rate affects rates from several sides. Of course, there is a course; all transactions with currencies are based on it. But this is only a small part of the scheme. the world, responsible for most of the transactions carried out in the world on the foreign exchange market, are the movements of capital, which are caused by the desire of investors to find greater profits from investments. Taking into account the state of all types of markets, including the housing market and inflation data, in any country, an increase in the discount rate has both a positive and negative impact on profitability.
Prior to this, the Fed rate increased on June 29, 2006. For 2007-2008 The Federal Reserve slowly lowered it until it approached the lowest level of 0-0.25% in the winter of 2008.
Fed rate hike
We will consider below what this action will lead to. Labor market indicators for small and medium-sized businesses in America today are the highest, and the unemployment rate has dropped by half compared to 2009. The Fed believes that the recovery of the labor market has every chance of spurring inflation and increasing wages, thereby supporting the state's economy.
In 2007-2009 In the United States there was a crisis in the housing market and in the banking sector. The Fed was then able to keep the state's economy from going into depression.
Can the Fed survive a rate hike today? Analysts here make different assumptions. Some argue that the Fed was able to smoothly keep the state's economic situation afloat. And then the Fed rate increase by 0.25 points will have minimal impact on the US economy. Others point to a very low inflation rate, arguing that the Fed could thereby bring down world markets and create the preconditions for an increase in the dollar if the Fed is in a hurry to make a decision.
The Federal Reserve Chairman says rate hikes are planned to be gradual. Experts in this area believe that the growth rate will be lower compared to the time of the last session, which began in 2004. The final rate of the discount rate will not exceed 3%.
Is everyone ready for change? Some corporations took advantage of the low rate time to borrow through the bond market. And now they say that they see no reason to worry about a slight increase in rates, believing that the market has already been able to use all the opportunities. Simultaneously big number Institutions that rely solely on low interest rates will not be able to withstand the rise in interest rates, and thus will be in trouble as their borrowing costs increase.
When looking at investors, most experts believe that the Fed has given them plenty of warning of its intentions, and traders have likely already factored future growth into their strategies. But some experts are confident that there will still be volatility from such serious adjustments in monetary policy, given that the indicator has been zero for seven years.
Below we will consider how the Fed discount rate can affect global markets.
The discount rate and its impact on the English economy
Most economists believe that the Bank of England will follow the American Central Bank in raising rates. History has seen more than once how the discount rates of the United States and England were adjusted simultaneously.
Today, the economic growth of Foggy Albion is stable, and the demand for labor is high. The head of the Bank of England emphasized that perhaps growth will become smooth.
The discount rate and its impact on Russia
The Central Bank of the Russian Federation will not be able to avoid negative influences from the strengthening of the US currency and the growth of the discount rate. This fact will entail problems with building up international reserves, which have decreased to $365 billion from an amount of over $500 billion.
Experts believe that, of course, rising rates will have a negative impact on the economy of our state. But this influence will not be as strong compared to other developing markets, since, as a result of sanctions, the Russian Federation is no longer so strongly connected economically with the United States.
The discount rate and its impact on Europe
An increase in the discount rate may have a negative impact on economic situation countries of the European Union, this may cause increased volatility and unpredictability of the market.
The head and other politicians believe that the recent wave of volatility in world markets will have a strong negative impact on the recovery of the European economy.
The discount rate and its impact on China
In response to the question of what would happen if the Fed raised rates, the Chinese authorities believe that they will be able to avoid the direct impact on the state economy from the increase in rates, and the impact will be small.
The Federal Reserve rate has a limited impact on the Chinese economy. Bad influence The economy of the state is affected by internal factors, for example, a drop in the competitiveness of products produced for export and overproduction.
The discount rate and its impact on Japan
Inflation here is also almost zero. Therefore, if the Fed refuses to tighten policy, sooner or later there will still be a significant difference between US and Japanese rates.
According to some experts, raising the Fed rate will make owning the American currency more attractive. But at the same time, the weakening of the Japanese currency will negatively affect the share of profits of importers and increase the share of profits of large exporters.
What stage is the market at now?
The point of raising the Fed's interest rate is to circumvent market bubbles caused by the Fed's very loose monetary policy over a long period of time.
To assess the current situation, it is better to conduct a retrospective analysis. It is important to note here that identifying the stages of the economy is a very subjective point. 2016 will likely be in the middle of the economic cycle.
Experts, however, do not expect sudden movements from the Fed. But there is a danger in a rather late or significantly slow move of such a move as the Fed rate hike, which could lead to a rapid increase in inflation and faster growth of the Fed, which will have an extremely negative impact on the stock market.
The conclusion to the discussion about what the Fed rate increase will lead to can be formulated as follows: until the Federal Reserve announces an increase interest rates It is better to get rid of shares of American companies. After rates begin to rise, you can wait for a market correction and purchase American assets again.