Fed Funds Rate and ECB Minimum Bid Rate

With the Global Economies current inflationary worries, the questions is not: If most of the World’s Central Banks are going to hike rates to stave of inflation, but rather When are they going to start?

The US Federal Reserve has already strongly hinted that their ease cycle is over. What remains unclear is if the current state of the American Economy is strong enough to start a rate hike cycle. The following graph shows the evolution of the Federal Funds Rate since 2004.

US Federal Fund Rate June, 2008

It has been mentioned recently Federal Reserve Funds Rate started to climb from a rate of 1.00% in June 2003 until reaching a high of 5.25% on June 29th 2006. This marked the first meeting of the Federal Open Market Committee (FOMC) under current Chairman Ben Bernanke.The following FOMC meetings significantly lowered the Funds Rate. Current USD weakness has prompted functionaries to move towards a rate hiking scenario, but questions remain if the US is facing more pressure from inflation or from a threat to economic growth which could trigger further economic losses.

By comparison the European Central Bank helmed by Trichet has inflationary pressures reaching decade high numbers in almost all of the European Union member countries. The Minimum Bid Rate has steadily been hiked since 2006, and Trichet and his team have endured first easing concerns to erode rate diffentials with the US, and now a pressure from the local heads of various european goverments to hike rates and cool down inflation.

BCE EU Minimum bid rate, June 2008

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.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza