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Main » 2018 » February » 13 » Fed: all bad?
Fed: all bad?


Opponents of the monetary policy of the "new era" has long been predicted that the Central Bank, in the end result, having exhausted all possible resources and methods of borrowing. Experts believe that there are at least three good reasons to believe that this era has already begun. 

Basically, at the end of the phase of the corporations, there are difficulties directly related to finding a sufficient number of employees: search for employees is very important to get in tune with the growing volume of sales.





And therefore, the companies decide to highly evaluate the work of new employees by paying them very decent fees. This provokes an increase in "wage inflation", which in turn acts as a notification to regulators: this is a signal that should increase interest rates. 

2017 (and especially the second half of the year) is characterized by rapid changes in the level of wages. The sharp jump took place before the excess payments - $ 1000, which the corporation has recently paid employees: a reaction organizations to reduce corporate taxes. 

In other words, we can confidently say that the wage inflation escalate the pace in the first half of 2018. Thus, the time when the central bank should raise interest rates - has come.

The past week has been one of the most speculative of all the financial history of fever swept the markets, and almost everywhere bonds rapidly lost value (garbage and sovereign bonds) and stocks fell, which apply volatility, while exotic funds increased. 

Instability swept America, but Asian region has not carried further: the leading site of China have fallen by almost 10%: this is the legendary crash fixed for the period of one week. 

As a rule, from the early 90-ies of the last century, a significant gap to the exchange provoked a reduction in rates: the Central Bank started to be a reduction in interest rates and buying up financial assets, making it to the newly formed capital.

With what purpose? Following the creation of the credit surge powerful in history, monetary government faces fears about the fact that even the usual drop in securities, approximately 20% can make an imbalance in the entire sector. 

After analyzing the situation, we can come to the logical conclusion that the Central Bank are obliged to cut interest rates and implemented buying the property, and the sooner, the better, as long as the situation does not become completely uncontrollable. 

However, the regulators, as well as analysts expected, have got themselves have fallen victim to this situation: if central banks do not raise rates, then inflation will start to gain momentum and grow. 

If they do not reduce the rate, the currency markets may expect a collapse, and it is a significant global threat.

Among other factors, on which the Central Bank raising rates is the chance to turn and fall in order to counter a new collapse. But in this phase, regulators and so were damaged by adverse experience (The Great Recession), that he did not dare to raise interest rates, not wanting it, even seven years after the revival and the emergence of inflation. 

In fact, the Fed switched to a narrow circle of the Central Bank, which raised rates, although an increase was observed insignificant. It is also worth pointing out that over the past two cycles, percentage of federal organizations, did not rise more than 5%. This allowed the Federal Reserve to actively reduce the rate to maintain the new loans.

At the moment, the Fed has the ability to cut only a few percentage points, before you reach the zero line, that could not dispel all the fears or reduce anxiety, which usually increases on the stock exchanges on the stage of the crisis. 

However, most of the remaining CB still possess rate at zero, or even below. In the mode of global economic delay, they will be forced to move in an unfavorable phase. 

Here's a likely case scenario for the future (next two years): the Central Bank will implement the real economy wages, tariffs on raw materials, as well as rising deficit still some time-period, and either save up the current bet or raise them slightly.

Regulators are likely to prefer an inflation increase, in order to prevent rates of reduction, even more going into the negative phase. 

Banks are likely to carry out the project to restart or expand quantitative easing (QE). Precious metals, as well as Bitcoin is rapidly rise in value when all prefer security.



Based on materials WELTRADE





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