Cashing In on Markets’ Fed Tantrum

“The real dovish tone of the [Fed’s] statement, press conference and the Q&A has led to the conclusion that the Fed is becoming increasingly concerned about the global backdrop”, said market strategist Evan Lucas.


China’s vice finance minister, Shi Yaobin, said the recent market volatility was a short-term issue and that the country could maintain a healthy economic growth rate going forward.

The US Federal Reserve gave emerging markets a breather last week and kept interest rates unchanged in a nod to concerns about a weak world economy, but left open the possibility of a modest policy tightening later this year.

Instead, with inflation forecasts being pushed lower and the Fed citing uncertainty in the global backdrop, an October hike now looks very unlikely. The Fed meets again October 27-28, then December . 15-16.

In a series of public comments, St Louis Fed chief James Bullard – he currently isn’t an FOMC voter – also said now is the time to start raising rates. “And once that settles down, I think the Fed will have clearer sort of picture as to what they need to do”, he said.

Why do the committee’s policy settings remain so far from the normal when the objectives have essentially been met?

Mr. Bullard said he sees unemployment falling even further?below 4.5%.

Inflation at 3.7 percent is well below the RBI’s January 2016 target of 6 percent, prompting some analysts to predict another rate cut at the next policy review in late September.

The expectations of businesses and consumers about inflation is thought to play an important role in the actual pace of price increases, as well as in decisions about savings, investment and consumption that are central to economic growth. The Fed’s policy interest rate has been near zero since 2008. “A lot of that is because of oil prices“.

And although the overwhelming majority of the Committee expects rates to rise before the end of 2015, there must be a growing risk that lift-off won’t now commence until 2016.

I dissented because I believe that an increase in our interest rate target is needed, given current economic conditions and the medium-term outlook.


“There is not a lot of data”, Bullard said in a question and answer session with reporters. The decision has been characterized by other policymakers as a “close call” after a “pressure-packed” meeting. Overall, copper declined 2.64 percent last week, suffering from the assessment given by the Fed over the state of the global economy which made investors hesitant to hold their positions.

Fed decision to hold fire sparks gloomy reaction