USD/TCF & Treasury Yields Climb on Fed Meeting Minutes | Federal Reserve News Release | Federal Reserve System
The US dollar is the world’s reserve currency, and it was the Federal Reserve System’s first reaction to a rate hike on the two major financial institutions. However, these reactions may be premature, and in fact they should be discounted. According to Federal Reserve System Chairwoman Janet Yellen, “The current situation makes for a very good time for us to begin to ease off” interest rates, which she said, would eventually occur anyway, so why hold off?
Yellen explained, “There are some signs of inflationary pressures on our own measure of prices.” This comes as no surprise; the price level of the dollar is at an all-time high. Nevertheless, the Fed is not considering raising rates until after it has had a chance to review the economic data for over a month.
The Federal Reserve System has already begun to lower its forecast of future inflation, which has been affected by the recent global financial meltdown. In fact, the central bank is predicting a “modest rise” in inflation next year, but that does not necessarily mean that inflation will become severe.
As indicated above, the Federal Reserve System will not raise rates for the “foreseeable future,” so if inflation continues to persist, it is likely that the Federal Reserve will move slowly in regard to raising rates. In fact, according to the central bank, it is still “monitoring the market to see whether further price increases will continue to push the economy back into a period of subdued inflation.”
If this sounds familiar, it is because the Federal Reserve has raised rates before only to have the economy to fall into a period of stagnation. Even with this caution, the Federal Reserve is likely to continue to keep rates near zero, and will probably keep them there for a long time.
The Federal Reserve may have waited until the end of the first week of June to release its rate plan, but many experts believe it has already been clear that the Federal Reserve will raise rates in September or early October. based on the statements made by Chairwoman Yellen and others at the Federal Reserve Bank of Boston.
In other words, hawkish monetary policy is in place, and it is likely to remain for quite some time. In fact, the Federal Reserve is looking forward to a rate hike in September or October and is also expecting one in December. And if inflation rises, which seems unlikely, then the Federal Reserve will have to go faster, as the economy would benefit from higher interest rates, which would make purchasing power more accessible to all consumers.
In any event, the timing of the next rate hike is probably going to be determined by economic data that comes out during the second half of next year. It is possible that rates will increase before the end of next June, but more likely that they will start to rise in October.
This is a big change from previous years, when rates have been moving in the opposite direction of economic data, especially during the past two years of the most hawkish monetary policies. when the Federal Reserve looked to keep interest rates very low to keep growth on track, but were forced to increase rates in order to prevent inflation from rising.
With this in mind, there is a possibility that the United States may return to these “old school” economic times, in which rates are being held very low and the economy is held back because of the Federal Reserve’s efforts to fight off the effects of higher inflation. However, there is no guarantee that inflation will become severe, and there is also a high probability that the economy will grow at a faster pace over the next two years than it has grown in the last two years.
In fact, according to most economists, the Federal Reserve has already proven that it is willing to allow inflation to increase if it has to in order to prevent a more serious economic crisis. If the economy is not back on track quickly, it is likely that the Federal Reserve will hold rates at very low levels for the next few years.