Now is time to get rid of Yellen Greenspan effect

Now is the time to get rid of Yellen Greenspan effect

Why sell-off
the market can make the September
rate hike more convincing?
The Federal Reserve does not say
on a specific date for its first
nine years of rising interest rates,
Recalling only the fact that it all depends
from statistical data. But this does not mean
the Fed will delve into reports of
jobs, economic growth and the level of
inflation. Instead, the Fed will do,
what do millions of other people
over the past few weeks:
look at the stock market.

many investors
have suggested that the recent sell-off
markets from Shanghai to New York exactly
scare the Fed and prevent click on
trigger rate hikes in
At its meeting on September 16-17.
Many prominent analysts and economists
explicitly asking the Fed to refrain from raising
interest rates to protect the price
shares. It seems they are still hot
They believe in the "Greenspan effect". They
We believe that the Fed will always come
to help the markets, and in fact a former head
Fed Chairman Alan Grinspen done so many times.

But we can not blame
these analysts, as indeed
Since 1987 until today the Fed
It responded to almost all market crash
and tantrums. She gave markets decline
rates, conducted quantitative easing
and promises that the policy of easy money
It will continue for a long
the time when there will be no general tradition.

On Wednesday President
New York Fed Bill Dadli seemed
I closed the door to higher rates
September, when he said that
Currently the rate increase in
Next month, no longer seems possible. traders reduced
their expectations of rates of growth in September
to 24%, while literally in the middle of the month
the rate was as much as 50%. But
Dudley at the same time managed to say,
the rate hike in September, “can
become more attractive at the moment
meeting, if we get more
information. ” And what is more
Information will make a decision on interest rates
more convincing? Dudley said that
Fed looks at such economic
data as the dollar’s value, prices
products, risks of infection from Europe,
China and the emerging markets. And above
all following the US stock market.

After a couple of days when
Markets “cool down” after a sharp drop,
analysts are already saying that
sales in the markets, on the contrary, did
rate hike in September more
Probably because it gives Janet
Yellen opportunity to finally get rid of
from the legacy of Greenspan and market habits,
that the Fed will always be saved from all
ills.

Fed it’s true
wants to raise rates, not because of his
economists think that the economy
fully healed after the Great
recession, not because they think
too many people have a job, and,
Of course, not because they are afraid that
inflation suddenly returned. They
They know that there is still too much
people are without a job, and they know
how strong deflation pressure.
But they think they saw enough
progress in moving towards full employment
and stable prices to start the process
normalization of interest rates.

There is only one thing,
that keeps them – a financial
instability. Even the “doves” policy
Fed, such as Dudley to think that the rise
Rates are now compelling, because
They are afraid, as if these extraordinarily low
interest rates for an extremely
long time not become habit
and lead to complacency of business leaders,
investors and consumers. they worry
incitement to financial instability,
that the Fed tragically awakened in
the late 1990s, in 2005 and 2006. Shortly speaking,
they want to raise the stakes to kill
"Greenspan effect".

Officials warn
that some of the stock market valuation
too high and the prices are not justified
fundamental factors. In fact,
case, the correction in the US market even
encouraged. The Fed does not mind if Dow
It falls, because it punishes the complacent
players and because these sales
They will be relatively organized.
There will be no panic on Wall Street.

If the markets will lead
himself carefully in this period
time until September 17, then there is a good
chance that the Fed will still be to raise
rate at least a quarter-point. But
If sales continue, or some
other factors frighten leaders and
force them to postpone their plans, the
it is quite possible that the regulator again
postpone the increase.

Good news for
The Fed is that companies understand
risks but help to ensure that
economy continued to “heal the wounds”.
The business sector (except
mining, oil industry)
make the money work, they build
factories and shops, buy equipment,
and the funds invested in research
and development. If companies continue to
to do so, the economy and the markets will
I feel very good.

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