ANNOUNCEMENT: Expert Investor is now PA Europe. Read more.

Will rates rise? All eyes on the Fed

With the most anticipated interest rate decision of recent times imminent, it seems the Federal Reserve is firmly stuck between a rock and a hard place.

|

PA Europe

Backing off from what for some time investors expected to be a June rate rise appears to have been a costly piece of procrastination.

Had the Fed implemented a 0.1% or 0.25% rise then, it is very arguable the market would have been considerably more accepting than it may be during the latter part of this week, whatever the decision.

By waiting, the Fed gave the Chinese market crash time to happen, which has been the main factor behind its current predicament.

That predicament being, it is damned if it does raise rates and damned if it doesn’t. If Janet Yellen and co decide to raise, with the dollar being the world’s currency more than any other despite the aspirations of the euro and yuan, they will be squeezing liquidity at a time when there are growing concerns the global economy is stalling.

If they back away from a raise, they run the risk of setting off alarm bells over just how fragile the global economy really is. By doing this they also merely kick the can a small way down the road and up the stakes even higher for their December decision.

Unless the markets fly along without serious incident between now and December, the Fed could find itself in an even more difficult position than it is in this week.

There is also an issue of priorities for the Federal Reserve. In previous rate hiking cycles the Federal Reserve had to give very little consideration to what was going on outside of the United States. Now though, while the Fed’s obligation remains to the American people, it has more to consider.

MORE ARTICLES ON