The world’s money people have the jitters ahead of a historic U.S. Federal Reserve decision on American interest rates, expected Wednesday. If rates go up, it would be the first time in more than nine years. Analysts are busy predicting either disaster or a boon. The decision may be the biggest development since the global financial crisis.
Days before Wednesday’s decision gold edged up (Nasdaq) then down (WSJ); the Financial Times predicted a raise, and while global stocks rose Asian investors were cautious (BBC). What to make of it all?
This story in F&O’s MONEY section may shed some light, by looking at the chairperson of the Federal Reserve.
WASHINGTON (Reuters) – Janet Yellen is guiding the Federal Reserve towards its first rate rise in a decade armed with traditional economic models that some economists worry could fail her in a world of massive money printing and near zero rates.
The 69-year-old economist argues the time is coming for a rate-lift-off even though inflation has yet to accelerate, trusting decades of studies that suggest a tight labour market eventually creates inflationary pressures.
It is a risky wager considering that global inflation is at historic lows and many central banks remain in an easing mode as their economies struggle to get any traction.
If she is right, Yellen, who has already presided over the end of the Fed’s bond-buying stimulus programme, will cement her reputation and that of her “dashboard” that relies on long-established relationships between jobs, wages and prices.
If she is wrong, the Fed could join the European Central Bank and the central banks of Sweden, Israel and Canada, which have all tried, but failed, to escape the drag of zero rates in the wake of the 2007-09 financial crisis. …. click here to continue reading.
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