Posted inEquitiesUnited States

The Fed has set a dangerous precedent

Backing off from a raise this month that it had heavily indicated was coming for much of the past year is one thing, but to do it for the reasons stated is another.

In citing external factors as a basis to set rates -China in other words- the Fed have set markets up to expect it to look beyond the American economy in their decision making from here on.

Any u-turn on this policy seems likely to shock markets into a panic, with the stakes for the next FOMC meeting raised even higher than those seen this week as a result.

Should the Fed members stick with this policy of looking far and wide at global data, they could find themselves forced to sit on their hands when there are inflationary danger signs flashing in the US economy for fear of causing capital markets disruption, or derailing emerging market economies.  

The equities markets which the Fed seems determined to protect have not exactly reacted to the news well in any case, with major indices from Frankfurt to New York via Paris and London trading significantly into the red today (Friday 18th).

Part of the Bonhill Group.