Prelude To The Fed's Decision
The US Federal Open Market Committee meets today and tomorrow and will announce any changes at 2pm on Wednesday.
The "Fed" wants to begin the normalization of interest rates, but for all intents and purposes they cannot.
The Fed's mandate: promoting maximum employment, stable prices and moderate long-term interest rates.
Earlier in the year, the Fed chose not to raise interest rates because Q1 economic growth suffered a significant slowing. While they put this off to "temporary" factors, their outlook for the 2nd half of 2015 was for improved economic circumstances and they anticipated at least 1 interest rate increase in 2015.
US Q2 economic growth came in at a much better than expected 3.9% annualized rate of growth.
However, the headwinds from the global economic slowdown lead by developments in China and emerging markets and a strong $US have put US growth expectation's for Q3 to a much slower 1.7% rate of growth.
Last week the European Central Bank hinted at the potential for further "extraordinary" monetary policy measures in December and the following day the Peoples Bank of China cut deposit and lending rates as well as reduced reserve requirements. All of this is intended to counter the current state of the global economy.
The Bank of England, Bank of Japan and Bank of Canada have all held monetary policy steady, but acknowledged the risks of a slowing global economy.
Global debt levels are 3X what they were in 2008.
Last week the European Central Bank hinted at the potential for further "extraordinary" monetary policy measures in December and the following day the Peoples Bank of China cut deposit and lending rates as well as reduced reserve requirements. All of this is intended to counter the current state of the global economy.
The Bank of England, Bank of Japan and Bank of Canada have all held monetary policy steady, but acknowledged the risks of a slowing global economy.
Global debt levels are 3X what they were in 2008.
Bond Markets have discounted a "no Fed rate increases" scenario until 2016.
Equity markets rallied last week on the back of the ECB and Bank of China news.
If the Fed were to increase rates tomorrow, volatility would skyrocket.
I don't think that is going to be something that the Fed wants to see. Basically, their hands are tied. So the probability of a rate increase tomorrow is low.
We will discuss this and other financial market and wealth management issues in more detail on our weekly webinar today.
The recorded version should be available at 5pm (or thereabouts) at
http://www.highrockcapital.ca/current-edition-of-the-weekly-webinar.html
Equity markets rallied last week on the back of the ECB and Bank of China news.
If the Fed were to increase rates tomorrow, volatility would skyrocket.
I don't think that is going to be something that the Fed wants to see. Basically, their hands are tied. So the probability of a rate increase tomorrow is low.
We will discuss this and other financial market and wealth management issues in more detail on our weekly webinar today.
The recorded version should be available at 5pm (or thereabouts) at
http://www.highrockcapital.ca/current-edition-of-the-weekly-webinar.html
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