Thursday, December 15, 2016

The rifle with several shots of the Reserve –

The decision was widely anticipated by the financial markets. For the second time in ten years, the FED increases its interest rates to bring them within a range of between 0.5% and 0.75%. But to the difference of the rate increase previous, carried out in December, 2015, after nine years of abstinence, the one taken Wednesday, December 14, is part of a movement of tightening of the monetary policy to come. Number of exegetes of the speech of the us central bank is of the view that Janet Yellen, the chairwoman of the Federal Reserve, could gradually climb back up to 0.25% up to three times the rates in the next twelve months. If this scenario is validated, the Fed funds rate would then be 1.5% in December 2017.

of course, this little turn of the screw of the monetary policy has its economic justifications. The goals of full employment (4.6% in November) set by the FED are being met, and those relating to inflation (1.7% over one year against a target of 2%) are not far from being so. Importantly, the increase in rates made yesterday was made unanimously by the members of the committee of the FED (FOMC). This has not always been the case, and therefore strengthens the legitimacy of Janet Yellen. Then she must leave his post next February, it will know that is expected in the corner of the wood by financial markets nervous by definition. But also the new President of the United States Donald Trump who is waiting, not without impatience, for his departure.

Careful, Janet Yellen said : “we operate in a cloud of uncertainty.” Translation : the FED expects, without actually saying the fact that the first measures – including tax cuts – the government’s Trump effect of the dopant on the growth and, therefore, on inflation. In other words, if this were to be confirmed, the FED does not seem to exclude the possibility of an increase superior to that currently anticipated. But Yellen has a margin of manoeuvre that is close enough. Increase too abruptly, the interest rates could have a dramatic impact. As the “crash bond” of 1994, which still haunts the memory of the investors. But at that time the traders had been surprised by the first rise in interest rates. This is not the case today. Another difference is that the Fed’s decision was considered too late in relation to the economic cycle. Suddenly, the u.s. interest rate long-term had soared, leading in their wake to their cousins in japan and europe. Before that Alan Greenspan has decided, in November 1994, to stop the fire by raising rates to 0.75% in order to break the expectations to the upside, and thus restore the credibility of the Fed. Conversely, delay of rate hikes could also have negative effects. Starting with a climb in too high inflation. Until now, Yanet Yellen was able to avoid the traps, but until when ?


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