Fed Keeps Rates Static

Daily Analysis - 28/01/2016

Difficult Global Environment Has Federal Reserve Hesitant


The Federal Reserve has left its monetary policies regarding interest rates unchanged after having raised rates from 0.25% to 0.50% nearly six weeks ago. Recent data shedding light on the slowdown in the global economy, as reported by the IMF, has Central Bankers vigilant for further details on global trends before unfurling the sail on advanced stimulus.

UK Housing Maintains Recovery

The United Kingdom Housing Price Index recorded gains for a seventh consecutive month as reported by the Nationwide Building Society. The data showed annual gains for the month of January of 4.40%, in line with December gains of 4.50%. The slide in mortgage approvals in December was the source of the slowdown, reported the NBS. On a monthly basis, January results rose at a slower pace of 0.30% compared to December’s 0.80% and expectations of 0.60%. The optimistic results have record low borrowing rates set by the Central Bank and continually rising wages and employment metrics to thank, according to NBS Chief Economist Robert Gardner. The Sterling Pound displayed no major movement over the Euro, with the EURGBP pair continuing upward to a high of 0.7593 after the announcement.


German Consumers Remain Confident

Germany's consumer confidence remains stable for the month of February, reporting values the same as for January at 9.4 while beating estimates of 9.3. Most analysts expected the confidence of consumers to decline slightly based on the refugee influx but also to escalating threats of terror. The upbeat report was mainly reliant on the stable employment market, giving consumers the certainty to be able to make large purchases and spend with discretion. Sliding oil prices also builds morale for consumers, who save more, and therefore can spend more as well. The dual-month positive results point to consumers that are maintaining their belief in the ability for employment rate to continue its trajectory, resilient income growth and very low inflation, conditions that are forecast to continue in the months ahead.


Market Remembers October as Rates Stay Stuck in US

The Federal Open Market Committee has kept rates at 0.50% after having them raised in mid-December by 25 basis points. Even if policy makers say they foresee a 3 to 4 rate hikes over the year, they now seem more concerned about the global economy and financial markets, especially after the recent turmoil in Chinese markets and statements by the International Monetary Fund of a slowdown in the world’s growth rate. The FOMC also stated that it will continue to closely monitor the inflation rate as well as the entanglement in the labor market. The recent mixed economic reports and financial market data have economists believing that the next hike, if any, may be delayed for longer than anticipated. The Federal Reserve reiterated that their initial plans will remain intact and that rates will be raised gradually, similar to their hesitant rhetoric near the end of 2015.


New Zealand Rates Also Slide Under Radar

The Reserve Bank of New Zealand has left rates unchanged at 2.50% after having rate cuts occur three times in 2015. Central Bank Governor Graeme Wheeler reflected the Federal Reserve’s concerns in his speech, which centered on the weakness appearing to continually plague the global economy. Officials expect growth to occur in 2016 based on strong net increases in immigration, construction being resilient and rising consumer confidence, but China’s slowdown is weighing on New Zealand’s economy. Adding to the concerns were inflation risks as the country’s Consumer Price Index remains at near zero growth levels, mainly triggered by the drop in commodity prices. The Central Bank Governor stated that if these conditions remain then the RBNZ will have to ease its monetary policy even further over the coming year in order to appease inflation.


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