The United States Federal Reserve System (FRS) following the results of the meeting of October 27-28 left the federal funds rate at the same level – from 0 to 0.25% p.a.
The traders and the overwhelming majority of economists expected the rate preservation at the same level, therefore no dramatic rises or declines in the world markets immediately after the publication of the communiqué on the results of the October meeting of the Federal Open Market Committee (FOMC) happened.
Predictability of the present decision of FRS merely strengthened the investors’ belief in Xmas miracle. How could you name otherwise the end of the tedious waiting for changes in the rate, which was frozen 7 years ago by Helicopter Ben – the former head of FRS Ben Shalom Bernanke, dubbed so for citing an idea stating that sometimes, in a down economy, ‘helicopter drop’ of money might be useful for fighting deflation.
It’s curious that the rate is to be defrosted by Dollar Queen – the first woman in charge for FRS Janet Yellen, who succeeded ‘helicopter’ in February 2014. Ever since the core question, which on a regular basis excites the global finances, has been when Ms Yellen would lift what was dropped by Helicopter Ben.
Judging by the spirits of the investors it should not take long. The probability of rise in the rate on the next meeting of FRS went up from 55% to 70% approximately.
Why not? The Federal Reserve itself signalled of possible rise in the rate ‘on the next meeting’ – in December this year. For the first time in this cycle the question directly concerns the rate rise; previously the discussions used to concern the length of time of keeping the loan pricing at zero point.
In expectation of FRS mistress, dollar anticipatory started putting on value little-by-little.
Stock exchanges sank into lull, the brokers froze on the starting blocks in waiting which way to run: the longstanding practice shows that the FRS rate rise correlates to sagging of stock prices. Thus, the reply to the question of rate: ‘To be advanced or not to be advanced?’ will be answered by the reply to the question of stocks: ‘To buy or to sell?’
The finance ministers of developing economies are in a low state. Once again, the practice of previous years shows that a rise in FRS rate automatically means the flight of capital from their countries of the developing world to the American government bonds.
In the USA the next portion of data of the economic situation is being expected constrainedly. Meanwhile, FRS blatantly ignores concerns about weak data published recently. In particular, about frustrating rates of employment creation in the USA in August and in September. The Board of Directors headed by Yellen is not scared by a rather unsteady situation in the global economy, as well as by the dependence of the American money market upon turmoil in external markets, in China, in the first place.
However, the historical decision is not long in coming — the next FRS meeting is scheduled to December 15-17.
We remind that FRS has kept the rate within the target range from 0% to 0.25% p.a. for almost 7 years – since December 2008.