The Curious Case of the Fed, American Hawks and the US dollar
Once again last night the Federal Reserve took centre stage to deliver a cautiously not-cautious statement about a potential rise in US interest rates.
"Even with the dollar shedding points post-Fed statement, it has regained these losses immediately this morning and shows no real sign of slowing down."
Janet Yellen, to hawks’ delight, pointedly removed the word ‘patient’ from the Fed’s lexicon, whilst the doves were happy that better jobs growth is needed before the oft-discussed rate raise will be seriously considered.
The US markets soared at the prospect of a delay in the raise (incidentally not a massive sign of confidence in the state of the US jobs sector), with the remaining hawks able to cling onto the ‘patient’-disappearance.
With the US markets seeing impressive growth, the dollar sank against sterling and the euro and everyone apparently came away happy.
But this rate rise issue isn’t going to go away, with a large section of the US economic elite thinking it’s absurd that such ‘emergency’ measures are still in place given the country’s economic ‘recovery’.
However these hawks appear to be stuck at the end of 2014, when the Dow Jones was rising on the back of strong US data and the rate hike drum was beating at its loudest.
Yet flash forward to now, the other side of an earnings season that’s main narrative was surrounding the damaging effects of a strong dollar with the stink of disappointing data lingering over America, and a rise in rates doesn’t look so wise.
The current hawks are overly focused on the recently strong non-farm payrolls, and wilfully ignorant of the failings in industry, wage growth and the housing sector, to name only a few.
Never mind the fear the dollar is striking in US multinationals; even with the dollar shedding points post-Fed statement, it has regained these losses immediately this morning and shows no real sign of slowing down due to the fact that the dollar’s recent strength has largely been out of the USA’s control.
Bar these Fed statements, the last currency-positive move the US made was ending QE last October; since then, the situation in the Eurozone and Japan has artificially boosted the greenback, perhaps beyond the Fed’s wishes.
The US is a far cry from where it was at the end of 2014; it says it all that the Dow Jones regained its recent losses on the back of interest rates being delayed. The hawks need to catch up.
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