The Fed still waits to hike rates - September 25, 2016
Although the era of negative interest rates may end soon, the Fed decided to wait with its rate hike this Wednesday. This is not unexpected, as market only gave a 20-25% chance for the hike, but more and more people believe a hike should come soon.
As we mentioned it a week ago, the general conditions are good for a 25 bps rate hike, and forex market is already pricing a raise too. The Federal Reserve was divided about the need for a hike, but at the end they decided against it. As they wrote in a statement: “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” But as the leader of the board, Janet Yellen mentioned their decision is not a sign of lack of confidence in the economy.
The need for a hike is more and more pressing, as we believe that central bankers soon will have to realize that zero or negative interest rates are not helping but hurting the economy in several ways, as they destroy the profitability of banks and without them there’s no healthy economic growth. Several officials in the Fed are talking about the need for a rate hike lately as well.
As we wrote it in May, an interest rate around 1-2% might be a lot better for the economy, but not only we believe this, Bond Guru, Bill Gross also warns about the dangers of negative yields on government bonds.
For now, the rate hike is delayed, but it’s rather likely that it will come by the end of the year. Until then, we can expect further corrections on the market as we’ve seen it in the last weeks, but this may be a great chance for investing.
Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any commodity. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. This is important when considering any investment.