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Main » 2015 » December » 24 » What fears FOMC?
What fears FOMC?

Alan Greenspan - American economist, chairman of the US Federal Reserve Board of Governors for 18 and a half years - characterizes the work of the central bank of America as "torture".



Janet Kjellén chairman of the Federal Reserve to raise interest rates for the first time in more than nine years.Apparently, the reaction to the decision last week turned out to be an adequate solution. Nevertheless, the question arises: what next?

The probability of a recession in the next year in the United States is about 10%. Even without taking this into account, there are a number of obstacles to be faced Kjellén. Nobody likes uncertainty. Today it is just what the Fed is doing by sending mixed signals.

A week ago, the Central Bank said that the economy continues to strengthen, and it will raise interest rates four more times in the next year. Although Janet Yellen has repeatedly stressed that, against the background of the risks for the economy and markets, the Fed deliberately slow to raise rates. In his speech, the chairman of the bank used the word "gradual" 13 times.


So after all that does not give Fed officials sleep?

1. Inflation

Perhaps the most important challenge for the Fed - is low inflation. Bank inflation target is 2%.

For ordinary Americans, inflation close to zero - not so bad. This means that the price of everything from fuel to clothes, almost standing still. But economists on Wall Street and the Federal Reserve believes that a healthy economy needs to have at least some inflation.

2. China

China - Joker 2016. The slowdown in economic growth in the country had a ripple effect for some countries, such as Brazil and Canada.

The decision of the Chinese government to devalue the yuan in August, caused a negative reaction of markets so that at its meeting in September, the Fed left rates unchanged, citing the economic situation in China.


3. The market reaction

The Fed is difficult to control markets. Rising interest rates in December was rather expected event, so the market reaction was "soft".

Today, forecasts the Fed and Wall Street diverge. The Fed expects four rate hikes next year, the majority of economists of Wall Street - just two or three.

The stock market is on track for the worst year since the financial crisis in 2008. The S & P 500 are expected to end the year with a loss. If in 2016 the current trend in the stock market will continue, the rate hike may be in jeopardy. 


A source


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