Ladies
and Gentlemen,
Today
the Federal Open Markets Committee begins a two day meeting in Washington,
concluding with an announcement at 19:00 on 17th September, followed
by a press conference chaired by Janet Yellen. The stakes are high and the
global financial markets wait with bated breath.
The
members have a tough decision to make, should they raise rates for the first
time since June 2006?
Larry
Summer, the 71st Secretary of the Treasury for President Clinton and
Director of the National Economic Council for President Obama has stated in his
blog that in the last 20 years the Fed has never tightened without guiding the
futures market to at least a 70 percent chance of a tightening. Right now the
Fed Funds futures market is assigning only a 28 percent chance of a September
tightening.
There
is a more centrist view, held by John Williams the San Francisco Fed President
that low interest rates are sending out the wrong signal. They indicate that a
crisis going on, when reality is very different. The labour markets have
improved the economy is getting back on track and the correct signal is to
raise rates. However the recent turbulence may make the members cautious.
What
options are available? Do they raise rates and say they will not do so again
until the inflation mandate is meet or do they continue to be data dependent
and give further hints as to when lift off will happen.
We
believe the press conference will give us a larger clue as to the normalisation
process and prefer to be long volatility as the Fed seeks to explain how it’s
mandate of maximum employment, stable prices and moderate long term interest
rates will be achieved.
Best of
luck
Anish S. Lal @anish8fx
FX & Precious Metals, Atom8
Financial Services LLP
2nd Floor, Centenary House, Palliser
Road, London W14 9EQ, UK
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