The international capital have today less reason than yesterday to stay in the emerging markets. The U.s. Federal Reserve (FED)announced the raise in their rates of reference, something that everyone expected, and was surprised with a scenario of higher increases for 2017:the central bank of us believed that there would be three hikes next year, and not two, as had been anticipated in September. After yesterday’s announcement, the benchmark rates of the FEDpasan of the band 0,25%-0,50% to a new range of 0,50%-0,75%.
the rise in The cost of the money of the FED and the prospect of more adjustments for the next year were automatically in two variables with great effect in emerging markets: the performance of the u.s. debt and the price of the dollar.
In a move that echoed the announcement from the FED, investors sold yesterday bonds us 10 years to increase his performance:he played a maximum of 2.58%. The upload of this performance is one of the factors that drive the dollar up, which yesterday rose in relation to the japanese yen, the pound sterling and the euro (tempted by the higher yields, more capital is converted to dollars to get into the business of Treasury bonds).
The problem is that, when the U.s. debt becomes a very interesting investment, the emerging economies (higher-risk) become less attractive. The investor who yesterday bought argentine bonds on the secondary market did to change a performance of 7.4%, when in September is happy with less than 6%.Bad news for the governments of the region need to issue new debt (they will have to offer higher rates)and for that they have to buy dollars with which to pay the old (they are going to be more expensive).
today’s announcement represents an important break of trend. In the last decade, the yesterday is only the second time that the FEDencarece the price of money. Since 2006, and by the global crisis that subprime mortgages erupted in 2008, the only thing that had made the tax was lower. They were in the band minimum from 2008 and it was not until December of 2015 they went up again another shy 0.25 percent.
But with inflation rising and unemployment falling, the FED had run out of arguments to postpone the rise in rates. "It is a vote of confidence in the considerable progress made by the economy towards our two goals of maximum employment and price stability", he said yesterday its president, Janet Yellen, at a press conference.
With its policy of minimal rates, the FED has tried to compensate for the lack of freedom of the government of Barack Obama to stimulate the economy by increasing public spending. The republican majority of the Congress prevented the democratic president to make use of fiscal policy but, thanks to the independence of the central bank, was never able to get on with the decision of the FEDde to keep rates low to encourage the taking of loans of production and consumption.
With unemployment at a minimum of 4.6% in November, the FEDconsidera that its goal of stimulating the economy to achieve full employment is quite accomplished. Yel another duty of the monetary authority to control inflation, began to ask a little bit of adjustment, although with a 1.7% increase in consumer prices remains below the target of 2 percent, the economy is like a great cruise that you need space to stop:a small raise in rates on time is much more effective to curb inflation that a greater increase if it arrives too late.
even Though the FED prevented to enter valuations on the next government to Donald Trump, the general interpretation is that the agency changed its forecast on the median rate from 2017 after the victory of the tycoon. If they had thought before that the rate of the year would be 1,125% and now there is talk of 1,375% can be, in large measure, by the announcements of Trump to cut corporate taxes and increase public spending. Unlike Obama, the mogul Trump himself has Congress on its part to increase the fiscal deficit and expansionary policies.
If the republican meets with his economic pledges to inject more money into the system, the new rate increases from 2017 would be needed to keep inflation in check. As said the late William Martin, FED chairman from 1951 to 1970(from president Harry Truman to Richard Nixon), the painful obligation of the U.S. central bank is to take "the punch just when he starts to put on a good party". With the announcements of Trump to cut taxes and increase spending on infrastructure and defense, the feast is going to be safe. What you don’t know yet is for how many
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