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Main » 2016 » November » 2 » 4 reasons why the Fed will not raise rates
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4 reasons why the Fed will not raise rates

 

4 reasons why the Fed will not raise rates

 Against the background of the pre-election turmoil in the US Federal Reserve will be forced to decide on Wednesday whether to raise interest rates or not. 

The rate increase is unlikely, but still possible. Your attention is four reasons, according to which the Fed may refrain from raising rates.

 

 

1. Fed officials do not want to interfere in elections


Fed Chair Janet Yellen said a million times that the decision of the central bank's key interest rate does not depend on politics. However, those who follow the actions of the Fed from Wall Street and to the scientific community to believe that the Fed does not want to even give the appearance of what is trying to influence the election. 


Rising interest rates may come under severe criticism from Donald Trump, which is already quite strongly criticized the decision Yellen to maintain rates low to help President Obama. This criticism was rejected by a number of economists who are convinced that the Fed operates out of politics.

 

2. Wall Street will be stunned by the rate increase


The Fed does not want to provoke chaos and volatility in stock markets. A sudden increase in rates is a key factor for this to happen. Wall Street estimates a 7% chance of a rate hike on Wednesday, according to CME Group. 


Raising rates is seen as a complete shock and the risk of falling markets. Plus, investors and the already on edge ahead of the elections in the United States. Raising rates will only exacerbate concerns.

 

3. The lack of a press conference after the meeting


After the Fed meeting on Wednesday are scheduled no press conference. But its implementation is very important. There is an unwritten rule that the Fed would prefer to raise interest rates at the meeting, which provides conference at which Yellen would be able to explain the decision and the Fed's arguments in this regard.The idea of ​​the press conference is that it helps to calm the markets and reduce uncertainty.


4. All have expected a rate hike in December


About 70% of investors are calling for higher interest rates in December. In addition to satisfying the expectations of December may be the ideal for several reasons: (1) will be a press conference, (2) will take place six weeks after the election, and (3) the Fed could wait a little longer to see how the economy will survive the election. 


December is also seen as deadline. Fed leaders even discussed at the meeting in September, if they do not raise rates in the near future, they will provoke the fall of confidence in the Fed. 


The Fed initially predicted that it would be raising interest rates four times this year, but it took just one more rise. December is the last chance the Fed to raise rates, and to reaffirm its credibility ... if it is of course not all the shocking rise in interest rates on Wednesday. 

 

Based on materials WELTRADE

 

 

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