Will The Fed Stall Stock Markets?

The US Federal Reserve is a regional bank that is the central banking system of the United States. Operated by the Federal Open Market Committee the bank is responsible for implementing monetary policies as well as controlling the economy of the country. The US dollar is the prevailing currency of the USA, and this can be traded using the forex trader platforms offered by easy market.

Since the financial crisis that hit the country in 2008, the Federal Reserve has held on to keeping the interest rates as low as possible for more than seven years in order to help recover the economic state of the country. As much as this move is positive, some economists claim that it is setting up competitive pressure that is increasing credit risk, weighing on bank returns and pushing money lenders to compete for more for borrowers.

Monetary Policy:  The End of QE

However, the most recent time when the US central bank raised its interest rates was back in December promising to raise the rate about four more times in the years 2016. Later on, the bank reported that it would only raise the rates twice in the year. The bank explains that it is safer to proceed moderately considering the prevailing economic risk in order to verify the strength of the labor market.

Furthermore, in a statement released after a two-day meeting in March this year, the chair of the Federal Reserve put forward that the central bank had put on hold a further increase in the interest in the US. This came as the opposite of what the majority was expecting. Most people expected that an announcement regarding an increase in interest rates.

Historic Interest Rate Levels

The Federal Reserve resolved to keep the rates between 0.5% and 0.25%. For this, it claimed that though the labor market is strengthening, it still targets reaching a 2% inflation rate which will see the US economy expanding moderately. This comes after a recent decline in energy prices globally and a low inflation rate internationally.

Most economists expected the chair Janet Yellen to hint at the two interest rates hikes that were promised earlier down from the four previous ones that were revoked. Probably, the hike has been postponed following the slowdown in China or global market uncertainties and with the next meeting of the Federal Open Market Committee scheduled on June 14-15, it is expected that there may be a hike in the rates.