A Variety of Forces are Working Against Fed’s Rate Rise

On Tuesday the Federal Open Market Committee will convene in Washington, D.C., as it does every six weeks or so. At that meeting, it is still widely expected that Federal Reserve Chair Janet Yellen and her colleagues from regional Federal Reserve banks will stop the Fed’s remaining $15 billion-a-month asset purchases, putting an end to the greatest monetary stimulus campaign in U.S. history.

For six years the Fed has bought trillions of dollars’ worth of U.S. Treasurys and mortgage-backed securities in an attempt to jump-start the U.S. economy. As a result, its balance sheet has increased to a record 25% of the nation’s gross domestic product—higher than at the end of World War II or at the heart of the Great Depression. Attention has already shifted to future interest-rate hikes, the next logical step in this dreaded tightening cycle, which the market believes will begin somewhere between the middle of next year and the beginning of 2016.

Those who have criticized what they consider a period of monetary lunacy will praise the normalization of Fed policy. Others will lament it and issue dire forecasts. Yet there is every reason to believe that this month’s highly anticipated end to so-called quantitative easing will be nothing more than a tactical retreat by the U.S. central bank, and that next year’s rate increase won’t materialize.

WSJ

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.