The most recently published FOMC meetings show that Fed officials generally agree that the US economy is pretty strong and interest rates should continue to increase in September. However, the record also suggests that if the global trade war starts to affect the US economy, the Fed may slow the rate of interest rate hikes. The US dollar index continued to soften, with the longest decline since 2016.
MarketWatch and CNBC reported on the 22nd that according to the FOMC's meeting of monetary policy meetings from July 31 to August 1, many Fed officials said that if the data show that the economy is still strong, the central bank in the future monetary policy should tighten. Fed officials also agreed that "soon" after the monetary policy statement the words "loose monetary policy" should be removed because interest rates are close to neutral water levels.
Market participants interpret the above language because the Fed is willing to raise interest rates during the monetary policy meeting at the end of September. Reuters reported that the FedEx tool of the Chicago Mercantile Exchange (CME) showed that federal funds with future investors on 22 December predicted that the rate hike in September was 96%, higher than the estimated 94% on the 21st. The rate hikes in December rose from 61% to 66%.
The record also suggests, however, that if the trade war continues to increase, the impact on economic growth may prompt the central bank to suspend interest rate hikes. Most civil servants have unanimously determined that the warming of the trade war is a serious underlying risk for the economy. Some people are of the opinion that the trade problem is inherently complex, and if the trade war is seriously heated, determining the right response measures will be a major challenge.
Fed officials believe that if trade disputes increase and last longer, this will have a negative effect on business confidence, investment spending and employment. Broad rates can reduce the purchasing power of households, reducing productivity and disrupting the supply chain. Other underlying risks are a sharp fall in the housing market, high oil prices or a severe slowdown in emerging economies.
In addition, the records show that when the next recession comes, the Fed is forced to cut interest rates to zero, and how to deal with it at that time, officials have a heated discussion. Officials believe that the federal funds rate clearly runs the risk of returning to zero in the next 10 years.
The dollar heard the news fall away. The MarketWatch listing shows that the US Dollar Index (DXY), which follows the exchange rate of the US dollar against the six major currencies, has decreased by 0.13% to 95.09 points on the 22nd and ended at a low close since August 1st.
The Financial Times reported on the 22nd that this is the sixth consecutive trading day of the US dollar index, the longest decline since May 2016.
(This article was taken over by MoneyDJ News, first source: pixabay)
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