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Thursday, 28 January 2016


Only someone naive would have expected an interest rate hike in US Fed meet on 27th Jan. With declining oil prices, roiled stock markets and volatile currencies, US Fed was expected to do what it did yesterday, keeping rates unchanged. It was more of a wait and watch policy as followed by ECB few days ago. Central bankers all over the world are watching how crude prices are going to pan out in the next 2 months as both OPEC and non OPEC members are expected to come to a consensus for their own sustainability.  And of-course China slowdown and Yuan’s devaluation impacting global stock and currency markets was another vital factor for the US Fed to keep rates unchanged.

US Fed has also communicated that the future adjustments to the target rate for the federal rate funds or in simple words, future rate hikes would be dependent on economic conditions both domestic and global relative to its objectives of maximum employment and targeted inflation rate (2%).  US economy has been witnessing mixed signals with respect to its economy’s health. Labor conditions and household spending has improved but contraction in manufacturing sector and poor corporate earnings for the fourth quarter are presenting a different case altogether. Major impediment for the Federal Reserve is inflation which is still below 2% and is not expected to improve with falling crude prices.

US Fed rate is no more a top priority for international investors already flayed by declining crude prices and  volatile Chinese currency and stock markets. What Janet Yellen can actually do is call all OPEC and non OPEC members for ‘CHAI PE CHARCHA’ and coerce them to rediscover a new balanced oil regime and then she can go on with her interest rate hikes.    

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