Maintain Economy ― what will the fed hint?
The main event of the week for financial markets will be the meeting of the Federal reserve system (the American analogue of the Central Bank), which will be held on Wednesday, March 16. Such an event can really be very important for markets from the point of view of investment sentiment, because after a period of local «financial bumpiness» in January-February in the first week of March we are seeing relative stabilization. About it says Grigory Beglaryan in the program «Replica».
The fed at a crossroads: to raise or to put this process on pause. Now to the decisions of the American regulator is influenced not only by the actions of the «colleagues» from the European Central Bank and internal policy. In the dilemma the fed understands Grigory Beglaryan.
And now investors are mentally prepared to buy shares and other equity instruments with a high degree of risk, but much will depend on the outcome of the fed meeting. I.e., as the regulator will shape market expectations in relation to their subsequent actions.
In other words, if the Federal reserve directly hint at a willingness to resume a cycle of interest rate increases, then in that case we can not exclude the return of turbulence in the markets, because at this point of time investors expect to maintain current rates until at least the autumn of this year.
Given the fact that in recent weeks we have seen a price recovery in the American stock market, some stabilization in the oil sector, and a relative lull on the Chinese financial front, it would not be surprising if the U.S. Central Bank suddenly hint at the willingness of higher interest rates in the coming months.
But the recent decision of the European Central Bank over aggressive expansion of monetary and monetary incentives while not giving a clear rationale for the inevitability of the signal about the growth rates of the fed at the March meeting.
The fact is that if at the forthcoming meeting on 16 March the fed did decide to give the green light to a new increase in rates, this step will be implemented in the conditions when almost all the key the Central Bank of the developed countries is not just save main cash incentives, but even declare additional large-scale stimulus (like the European Central Bank and, possibly, Japanese).
In this case raise the question of how monetary policy the fed will diverge from the policies of his colleagues from other developed countries.
If you decide to take the course for further growth in interest rates in the first half of this year, this moment will provoke the inevitable strengthening of the position of the us dollar.
And although the regulator could easily live with a strong currency, but in this situation there is a threat to the American manufacturing industry, staying now not in the best condition, but with the risks of a sharp decline in the event of a new cycle of strengthening of the dollar.
But in the ongoing election campaign for President of the United States the main candidates seems to be paying great attention to the industrial sector of the American economy, and it would be very «inconvenient» if a premature increase in interest rates by the fed would hurt the manufacturers and export industries.
For this reason, we must bear in mind that in addition to purely economic reasons for the Federal reserve there could be political. That is, despite the formal reasons to raise the interest rate in the next quarter (the stability of the stock and commodity markets, the relative normalization of the Chinese monetary sector, etc.), the us regulator may find excuses to not rush.
It can be assumed that as such excuses for the fed may be the recognition that, say, the global economic recovery is at a very delicate stage and looks too fragile to controller could increase interest rates in the near future.
Another question that among key fed officials appeared quite a lot of supporters of the idea to ignore external economic factors and pay attention only to the domestic U.S. economic data. Such officials publicly welcomed the growth in employment and weak, but increasing inflation in the country, and if these «hawks» will strongly make it clear that already this year, have several interest rate hikes, this could trigger a sharp rise in the dollar and new financial shaking in the markets.