19th December 2016

FED keeps focus

This week all attention has been on the US Federal Reserve, which decided to raise interest rates on Wednesday.

The continued strengthening of the US economy is at odds with most other developed markets, where low rates and quantitative easing are still the norm. The challenge for the US central bank, and indeed all central banks, is that they are mostly running on empty. Everything that could be done, has been done, and yet economic growth is still modest at best. This is ok assuming things stay as they are, but should there be another recession there will be little monetary policy can do to react. For this reason, we should be envious of the US being able to take the first steps towards interest rate normalization.

Elsewhere markets reacted not to the hike but the suggestion of more hikes that were included in the fed’s dot plot. The signalling of intentions is a common ploy for central banks, and is often used as a way to encourage good behaviour rather than genuinely signalling a genuine desired policy. Keeping the market guessing has long been the preferred role of central bankers.

To read this weeks full market commentary follow the link below.

Market Commentary

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