The Comments & Discussions Regarding Fed Impending Decision

August 11, 2010, 12:37 AM

As a consequence of the comments originating from the San Fransisco, Federal Reserve indicating a downward trend people are assuming that the Federal Open Market Committee is likely to create an environment of ease during the scheduled meeting.

The prevailing situation is source of great pressure on the Federal Reserve Chairman, Ben Bernanke to take effective measures as stated by Mark O’ullivan, a director Currencies Direct.

Although the targeted FED funds rate by it’s effect is zero. The central bank possibly attempt quantity based easing, where there is increase in the money supply by measures other than rates, like purchase of Government bonds.

It is felt that the FED has no panic situations before it, but the market is absolutely unaware of which steps we are going to take in respect f Quantum Ease or straight away purchase of treasury bonds” this was made known by O’Sullivan.   

Presence of lower volumes during summer, the betting against dollar are at high level during the year, which can result in minor squeeze, as result of which prices increase fast, because the investors take short covering position on the green back, as stated by O’Sullivan.

Considering the situation in case European Central Bank and Bank of England are following the lead given by FED, in that case any change in the quantum ease shall influence the position of dollar in a positive manner. Even in the situation of FED spooking the market, the dollar shall still gain as it’s safety move.

President Barack Obama has expressed strongly in respect of austerity to be practiced by European Union and UK, there is short period of decoupling.    

FED Hand to Be Forced:

David Blanchflower, previously a member of Bank of England Monetary Policy Committee, who at present is teaching at Dartmouth College, commented the Fed shall get the pressure to act immediately or latest within a month’s time.

“The US economic situation in relation to jobs is not getting hot as a result of which the confidence of people is restored. The situation does not give any indication, whether the things are in the right track. Considering what is happening, the Fed shall be forced to act either in this month or latest by September” these were the views of Blanchflower.

The worrying cause is that the growth is weak and when there shall be a push, it would be just double all of a sudden as stated by Blanchflower. In such a situation UK shall not be in a position to dodge the Fed’s lead.

“The present problem faced by UK is that there is new Government and has virtually does not have the exposure to the economic tactics” commented Blanchflower. The Government of course has made some statements, without having the knowledge about economy and it’s today’s position.

Last Friday the organization dealing with Economic Cooperation and Development, spoke about UK economy facing double dip move at a peak slowing. In it’s slowing process if there is decision to affect cutting of fiscal policy it shall be a mad act, because by cutting of expenditures and increasing the taxes the monetary policy is going to face unbearable strains on it.

Interest rates are already at Zero, which is necessary, the alternative plan is to affect more QE and UK has extremely high pressure for remaining effective as viewed by Blanchfower.

Affecting Higher-Rate Supporters:

In contrast to other views Sir John Gieve, who is the present Deputy Governor and looking after financial stability at BoE, at the time financial crisis hitting, is of the view that US and UK have the objective of preventing recession and the time is very near when higher rates shall be discussed and resorted to.

There is no likely occasion of double dip affecting US or Europe. Either at this year end or during the beginning period of next year, these two quarters are not of much interest at the same time there shall be adequate growth.

Mr. Gieve is of the view to see the four quarters with good growth, there has to be interest rates to support the growth.

“The BoE has to take care of the inflation target, and shall be within it’s rights to think of increasing the interest rate.” As stated by John Wraith. The influencing factor shall be German exports. It can be limited due to stronger Euro and weak demand of US, which shall badly affect German Exports.

Related Articles

• Investors Facing Recovery Worries at Wall Street Downfall
• Stock Futures Fell Prior Scheduled Fed Meet & China Slowdown

Tags: Federal Reserve