Volatility in financial markets are accentuated by expectations
concerning U.S. interest rates ; this also affects the value of the dollar, and dents emerging market economies through hot money flows. The Fed may pretend to be concerned with this
expectation driven volatility but at heart it is only concerned with what is
good for USA.
The Fed has two objectives (i) maximum employment and (ii) price stability.
Both of these are just fine now for the USA. Fed may not want to disturb it.
The Fed maintains a highly
accommodative monetary policy stance since the financial crisis and this has supported growth and jobs while holding deflation at bay.
Recent developments in the global economy, especially those
originating in the Chinese economy, holds Fed back. China is as yet struggling
to achieve a higher growth rate and to tide over its stock market failures
The Fed recognizes that China is important for the global economy and any hike now might affect it adversely Europe cannot be said to have settled with Draghi promising more quantitative easing if need be.
So Fed will wait for clear signs of a warming economy- indications of more jobs and be sure that inflation is moving towards to 2 percent over the medium term before it moves to raise rates.
Views expressed without any risk or responsibility. This blog recommends no investment.
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