The US Federal Reserve at a Difficult Decision Valley.
By Vivian Atud
Contrary to popular speculations, the US Federal Reserve officials failed to give clarity on when it will start increasing interest rates. It is becoming more challenging than previously anticipated for FED official to decouple U.S. monetary policy from the rest of the world.
FED Chair, Janet Yallen and her team opened the door to an interest-rate increase later this year, however, they indicated that they were in no hurry. They further said the pace of tightening, once begun, would be slower than previously anticipated.
Why this wary stance: Reasons for this position include: a surge in the dollar, triggered in part by easier monetary policies abroad. The dollar’s strength is repressing already too-low U.S. inflation while restraining economic growth.
So what: The FED decision yesterday sent U.S. stock and bond prices to new highs while the dollar sank. The Standard & Poor’s 500 index surged 1.2 percent, while the yield on 10-year Treasury notes sank 13 basis points to 1.92 percent. The Bloomberg Dollar Spot Index dropped 1.8 percent.
The Federal Open Market Committee dropped an assurance in its policy statement that it will be “patient” in tightening policy, raising the possibility of its first rate increase in almost decade. Yellen though stressed at a press conference that the change did not mean the Fed was in a rush to raise rates.
“Just because we removed the word patient from the statement doesn’t mean that we’re going to be impatient,” she said.
Investors will continue to watch the US economy and how it will impact FED’s decision in the coming months.