Fed Rate Hike

June 13, 2016

Fed Chair Janet Yellen relieved the fear of many investors on Tuesday when she confirmed that the Fed would proceed with caution. Dating back to March 17, 2016, the Federal Reserve kept its federal funds rate in the range of 0.25 to 0.5 percent unchanged, saying that monetary policy stance will remain accommodative so as to further improve labour market conditions and provide support for returning inflation to 2 percent support. It should be said exactly this decision and before the market expectations, the market still made obvious response: the dollar index plunged 110 points; US oil rallied nearly 6%; gold jumped $ 25. The recent series of indicators (including strong growth in employment, etc.) indicates that the job market is further enhanced. Or to say unemployment rate is turning positive. Another is the inflation rising in recent months, but remaining below the long-term goal of the FOMC, which partly reflects the fall in energy prices as well as prices of non-energy imports. The global economic and financial situation is to continue going with risk. The recent inflation is expected to remain at low levels, in part because energy prices fell further; but with energy prices and imported products affect the temporary employment market and inflation will rise in the medium term to 2%. FOMC expects the development of the economic situation can only make it reasonable to gradually raise the federal funds rate; over a period of time, the federal funds rate is likely to remain below the long-term average level. However, the actual path of the federal funds rate will depend on future economic data prospects. In fact, since the Fed bid farewell to the era of Greenspan, the Fed’s monetary policy reflects the high degree of transparency and predictability, which is in a way conducive to market anticipation and stability. From whichever the Fed &’s resolution or Yellen conference declaration, we can indicate the following: First, the global economic risks predict higher than in December 2015, in particular on oil prices to new lows before the question, feeling significantly beyond the Fed’s previous expectations. Increased risk of a further slowdown means that the rate hike expectation declines. Second, expectation to hike interest rates in 2016 is softened due to cutting interest rate raise from previous four times to the 2 times for the year. Although Yellen hinted April does not rule out the possibility of rate hike, but in the current situation, the June┬árate hike may not be probable

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