The zloty rate is jumping. Fed and interest rates



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The Federal Reserve, the US central bank, kept interest rates unchanged, but signaled the possibility of cuts by the end of the year. That means nothing more or less than Jerome Powell, the Reserve's chief, blinks in markets that have demanded cheaper money. As a result of the Americans' decision, the dollar weakened. On the other hand, stock indexes in the US were immediately triggered.

The Fed softened the language of the ad, opening up to rate changes. He removed the speech fragment that he intends to be "patient" in determining future interest rates.

– Although the Committee still believes that "the most likely result is a sustained expansion of economic activity, strong conditions in the labor market and inflation close to the symmetric target of 2%, but uncertainty about this perspective has increased. In light of these uncertainties and moderate inflationary pressures, the Committee will closely monitor the implications of the information received for the economic outlook and will act accordingly to support the expansion – quote quotes from central bank statement Konrad Białas, chief economist at TMS Brokers.

The Fed leaves interest rates at the same level

Today's Federal Reserve decision was extremely important because in recent weeks market expectations for US central bank policy have changed a lot. They had a slowdown in the US and a cut in rates, which pumped the stock market and weakened the dollar. This means that for the first time since December 2015, when, after the financial crisis, central banks cut rates to zero and started printing money, investors are again demanding a return to ultrafine money. Economists warned that The experiment of these central bankers will be like heroin to the markets and will continue to demand the next dose.

Moreover, during the June meeting, Jerome Powell had much to prove. Bloomberg reported that in February Donald Trump has discussed the possibility of dismissing the head of the central bank. It is no surprise that the US president remains a staunch critic of the Federal Reserve's monetary policy, which he says weakens the economy. So will Trump be pleased with the dovish attitude of the bank or will it still be insufficient? We do not know that yet. At the time this article was written, your twitter was silent.

Graph point fed. How many discounts this year?

Interestingly, although the Fed could not admit the obvious error of increases last year and suddenly cut rates, it still went to the markets. The Bank presented new quarterly macroeconomic projections and a chart of points, showing the forecast of interest rates in the coming years.

In June, Fed members anticipated the stabilization of the interest rate in 2019, as in March, in 2020 a reduction vs. a rate increase earlier, and by 2021 an increase.

Eight Fed members have opted for a dot-plot with lower interest rates in 2019, eight expect no change and one expects a high.

Graph of points fed. This year a possible rate cut

Photo: Fed

Graph of points fed. This year a possible rate cut

Curiously, after the market meeting at 100 percent assesses the likelihood of a 25 bp reduction in the fed funds rate. already in July, a total of 2-3 reductions by the end of 2019 and four full cuts by the end of 2020. The meeting in a month will be extremely interesting. Will Powell, as this time, bows to the demands of the markets and the White House, will he focus on showing his independence? The head of the American bank will have a dilemma of Sophocles' tragedy.

The Fed is very divided. Of the 7 members waiting for 2 cuts this year, we probably have President Powell, it's a pity he gave in under pressure … – comments Przemysław Kwiecień, chief economist at XTB.

How does the Fed view the US economy?

Let's go back to the message itself. What can we read about it? Inflation in the US, according to the Fed, is below 2% per year. It was added that market inflation expectations fell (previously: "remained low in recent months"), and long-term research expectations remained broadly unchanged. According to the Fed, the US labor market remains "strong" and activity in the economy is growing at a moderate pace (before: solid).

The Fed said that job growth remained on average "solid" and the unemployment rate remained low. The increase in household spending rose slightly, while the Fed's investment momentum was low. (previously: slowed down).

Fed Conference

"Many FOMC members now believe that the premises for a somewhat more accommodating policy have been strengthened," Powell told the conference. "We will monitor (situation – note), but we would like to see more if the risks will continue to weigh on the outlook. Many members see stronger reasons for cutting their feet"- he added.

He pointed out that the Fed was prepared to use tools to support growth.

He pointed out that the FOMC is holding the decisions because it wants to wait for the situation to unfold, including trade negotiations and not to react too quickly.

"The risk of waiting for too long (with the cut of the feet – right) is not great," he said. He added that Fed members were concerned about the rate of inflation. Powell also pointed out that the discussion at the June meeting focused on developing the correct monetary policy response to the more uncertain environment.

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