“The Dow has just broken through the 25’000. Fantastic News!” This line is widely used US President Donald Trump yesterday after the decision by the Fed not to raise interest rates further. The result of the Fed’s decisions yesterday were sharply rising prices on the U.S. stock exchanges. The Dow Jones Index on the Trumps Tweet referred to rose by around 1.8 per cent, to 25’015 points. The Nasdaq 100 of the major technology companies has increased by more than 2.6 percent.

the Fed has not Surprised, however, to leave the key interest rate further in the Band between 2.25 and 2.5 per cent, which was in unison. But the Central Bank was under the direction of Jerome Powell underwent a complete change of course: in the past, the foreign exchange, interest rates should, in principle, be further increased, only the pace remained open. The new currency is summarized in the word “patience” was not only the first time the interest rate decision itself, but also the comments of Fed Chairman Jerome Powell, in his press conference dominated.

This means that, with further interest rate steps time. How much time, in addition, the analysts can only speculate. Unlike before, it is now, but not sure if interest rates will ever be raised. Four times the Fed has increased interest rates in the last year alone. This and the previous expectation of more of the following interest-rate increases were poison to the stock exchanges. In view of the development of the trade war between the US and China, the uncertainty is already large. Higher interest rates lead to rising investment costs of the company, in addition, you reduce the risk premiums that equity investments will earn. The risk premium is the difference between the return of risky assets such as equities and secure as government bonds.

The Fed’s press conference is also on the New York stock exchange transfer. Photo: Keystone

Donald Trump development on the stock markets is there such a thing as a gauge for the success of his policy – even if it’s for no good reason. For this reason, he has made in the last year and increasingly more hateful his displeasure about the interest rate policy of the Fed and of the enthroned Jerome Powell air. At the end of the leaked from the White house that Trump eruiere, as he could Powell get rid of, what would be the catch because of the independence of the Central Bank. The recent euphoric Tweet from the President to the price jump in the Dow Jones Index is a clear indication that the turnaround of the Fed is to his liking. Directly, he has not commented on the decision of the Central Bank this time.

uncertainty determined by the Fed rate

Fed Chairman Powell has emphasized yesterday for the umpteenth Time, that he and his authority were to take on the wishes of Donald Trump no consideration. Even if the rate of exchange of the Central Bank dampens the political pressure by the President, that will not be the reason for the new alignment. There are good reasons for the interest-back attitude in the United States. Powell even pointed to a weaker global economy, mainly due to lower growth in China and Europe and a decreasing dynamics in the US economy in the last few months. Of a recession, is considered by analysts as increasingly possible, he wanted to know nothing.

the main problem with The Fed is not the slowdown in growth, but the high level of uncertainty about how it goes. The same uncertainty has already been shown in the Update to world economic Outlook of the International monetary Fund: what’s next for the Brexit or with the trade war, threatens a significant correction in the capital markets and a new financial stop the U.S. government (Government Shutdown), and how this affects everything on the economic dynamics?

These Concerns are requests for a change of course of the Fed are much more important than Trumps. At the Bank, you will now simply have more clarity about further developments, new data and wait, and definitely not in a downward spiral of self-triggering or reinforcing. Even the removal of the bloated balance sheet will put the Fed is now on ice. This is also a clear indication for a change of course.

After all, the USA are here in a very much more comfortable starting position than the Europeans or the Swiss. Because while the US Central Bank has raised its key interest rates since 2015 already nine times, remain those of the European Central Bank and the Swiss national Bank still in the negative range. Should come true, fears of a renewed crisis, the Fed is a weapon in the Hand, it could reduce interest rates. We, in Europe, in this case would be pretty defenseless. (Editorial Tamedia)

Created: 31.01.2019, 12:55 PM

GERELATEERDE ARTIKELENMEER VAN DEZE AUTEUR