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The Fed cannot come to a consensus – this is an obstacle for raising interest rates

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The Fed cannot come to a consensus – this is an obstacle for raising interest rates

The Fed cannot come to a consensus – this is an obstacle for raising interest rates
September 13
09:00 2016

The heads of the Federal Reserve cannot reach an agreement in order to take serious steps next week. This means that, probably, the interest rate hike has been postponed to the end of the year, according to The Wall Street Journal.

The inflation rate in the United States is still below 2% per annum. This inflation rate is being targeted by the Fed and it gives the Central Bank the room for maneuver. Thus, the unemployment rate is only 4.9%. And a number of chairmen of the regional Federal Reserve banks are confident that the labor market has recovered from the crisis of 2007-2009, and it is high time to take actions to increase the cost of lending.

During some weeks the investors did not believe that the tightening of the monetary policy was unlikely to happen in September, but recently the chances for the rate hike have increased greatly.

According to CNBC, on Monday Lael Brainard, Governor of the Board of Governors of the Federal Reserve System, paid attention to the encouraging state of the US economy. But she turned to her colleagues with an appeal not to raise interest rates too quickly.

The speech of Brainard in Chicago a little removed the tension from the market. It was the last before the “week of silence”. It means seven days before the meeting of the Federal Open Market Committee (FOMC). This week of silence is prescribed by the Fed’s rules, during which the leaders are forbidden to give comments on the monetary policy. Most often, this time is dedicated to briefings of the Fed experts.

Deutsche Bank’s chief U.S. economist, Joseph LaVorgna, commented the speech of Brainard: ” The speech of Brainard suggests that she will vote for keeping rates at the FOMC meeting this month.”

“The members of the Board of Governors are rarely against FOMC decisions, but even if Yellen, Fed Chairman, insists on raising rates, it is difficult to believe that Brainard will go for this a week after the speech,” – noted the experts of Econohedge.

Only 13% of the 46 experts, interviewed by the Financial Times, make predictions about the increase in Fed rates at the next meeting. An independent survey of The Wall Street Journal has also showed that only 13% are sure about the rate hike. But, nevertheless, a number of analysts believe that we should not underestimate the ability of the Fed to make decisive steps.

The Fed meeting will be held on September 20-21.

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