The Fed threatens to raise rates. Fundamental analysis for 21.08.2014
21.08.2014
Yesterday, late at night, reports of the recent meeting of the FOMC were published. Of greatest interest is the position of the committee members on the terms of rate hikes since the end of QE3 is already resolved and the only thing that can stop the process of exiting the program could only be extremely negative statistics and a sharp rise in unemployment, which is unlikely. The protocols have once again confirmed that an earlier rate hike is indeed possible.
However it was not without some controversy. Previously Janet Yellen has repeatedly pointed out that as long as inflation remains under the control of the Fed, the monetary policy will continue to be used to support the labour market. However, despite significant progress in reducing the level of unemployment, the overall employment situation remains quite difficult. Firstly, the number of working-age Americans who have left the labour market is still significant.
Moreover, it is unclear how the American government plans to deal with the so-called "long-term unemployed." Many of those who have "dropped out" of their professional environment already need retraining, but not every employer is willing to pay for it. Another problem is to part-time employment - if a person works at least a few hours a day, the official statistics no longer believe them to be unemployed.
This is why most FOMC members expressed the need to obtain further evidence on the improvement of the situation on the labour market and the beginning of sustainable economic growth. However, if the unemployment rate will continue to decline at a faster rate compared with the expectations of the Fed, that's when it becomes possible to have a rate increase. And there has been some shift in the position of the regulator for an earlier rate hike.
More recently, in the July testimony before Congress, Janet Yellen teetered between two positions, not excluding the possible abolition of the expected rate increase if the economy did not stand on its feet. In other words, a month before she maintained the position that it will depend solely on statistics. Yesterday's protocols however, did not even mention a longer period of low interest rates, which reflects certain mood swings inside the Fed.
Logically, the next confirmation of a probable early rate hike helped the dollar to strengthen the position even more. Weak positivity from the euro zone, where the data on PMI indicators was not as negative as it was expected to be, allowed the market to go into a correction. However, with this news background is difficult to expect a deeper pullback, and therefore I hold my deals to sell and subsequently plan to open new shorts.
RoboForex Analytical Department
However it was not without some controversy. Previously Janet Yellen has repeatedly pointed out that as long as inflation remains under the control of the Fed, the monetary policy will continue to be used to support the labour market. However, despite significant progress in reducing the level of unemployment, the overall employment situation remains quite difficult. Firstly, the number of working-age Americans who have left the labour market is still significant.
Moreover, it is unclear how the American government plans to deal with the so-called "long-term unemployed." Many of those who have "dropped out" of their professional environment already need retraining, but not every employer is willing to pay for it. Another problem is to part-time employment - if a person works at least a few hours a day, the official statistics no longer believe them to be unemployed.
This is why most FOMC members expressed the need to obtain further evidence on the improvement of the situation on the labour market and the beginning of sustainable economic growth. However, if the unemployment rate will continue to decline at a faster rate compared with the expectations of the Fed, that's when it becomes possible to have a rate increase. And there has been some shift in the position of the regulator for an earlier rate hike.
More recently, in the July testimony before Congress, Janet Yellen teetered between two positions, not excluding the possible abolition of the expected rate increase if the economy did not stand on its feet. In other words, a month before she maintained the position that it will depend solely on statistics. Yesterday's protocols however, did not even mention a longer period of low interest rates, which reflects certain mood swings inside the Fed.
Logically, the next confirmation of a probable early rate hike helped the dollar to strengthen the position even more. Weak positivity from the euro zone, where the data on PMI indicators was not as negative as it was expected to be, allowed the market to go into a correction. However, with this news background is difficult to expect a deeper pullback, and therefore I hold my deals to sell and subsequently plan to open new shorts.
RoboForex Analytical Department
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