Saturday, August 27, 2016

Fed: Risky awaiting the Fed – WirtschaftsWoche

For a long time speak the bare figures for a rate hike in the US. But Fed chief Janet Yellen has not hesitated. Is she waiting much longer, it could soon be too late.

If we follow the US election campaign, one could quickly get the impression that the United States were deep in crisis. Donald Trump conjures downright the weaknesses of the country, tells stories of high unemployment, denies the official figures, and throws bitter, like other States are allegedly pulled past his home.

The reality is far more friendly. The USA are constantly growing, unemployment has known for years only one direction: down, and even the new debt, US President Barack Obama last get a grip. Inflation has climbed over the target of two percent and companies are positive about going from good stores in the coming months and look – partly desperate – workers

that makes the head of the US Federal reserve (Fed) with their announced last year turnaround in interest rates is still not serious and the Central Bank has recently refused further rate hikes, is less and less comprehensible. Yes, the global economy is weakening. Yes, the US economy could attract more clearly. But a moderate increase in interest rates would not stall the domestic economy and ensure higher unemployment, enable even the world economy and financial markets in turmoil. That seems the Fed boss increasingly to believe.

The most important facts about low inflation

  • What does the low price level for consumers?

    motorists can just as delighted as everyone have to heat the house or flat: the fuel and energy prices are for months on the previous year. The strong euro also helps that refueling and heating is more favorable: The strong euro reduces the cost invoiced in dollars crude oil imports. Low inflation is therefore in this case, good for the wallet: consumers get more for their money. However itself is currently very low inflation in Germany nor the interest that are currently earning on most savings accounts or money market accounts. So the bottom line savings lose value. However, the losses of depositors would be even greater if the inflation would be higher.

  • What is bad about falling prices?

    the problem is, how consumers and businesses assess the future development of the price level. Who further falling prices expected maybe moves the purchase of your new washing machine or the investment in the new factory building – because it can actually be only cheaper. This could set a dangerous downward spiral: companies make less profit, workers are laid off. These can then afford less and the pressure to reduce prices further increases. This concatenation is paralyzing the economy. As a consequence, tax revenues and the burden fall by debt and benefits increase.

  • Why is the inflation rate is currently so low?

    70 percent of the decline in inflation in the euro area, as it has recently, ECB President Mario Draghi vorgerechnet, go to the account of lower energy – and food prices. The fact that the price level in Germany is still higher than in many other euro countries is that in countries such as Greece, Spain and Co. companies have to reduce prices in order to become more competitive. In addition, governments need to save in order to remove high levels of debt. In Germany, the economy, however, is relatively robust. This creates room for investments and wage increases.

  • Threatens dangerous for the economy deflation?

    In opinions differ. So warns the DIW from the danger of “a self-reinforcing deflationary spiral” for long-lasting low inflation. DIW president Marcel Fratzscher calls for intervention by the European Central Bank. In “Focus”, he writes: “Without a vigorous intervention of the ECB, I see black.” While Europe’s central bankers expect a low inflation rate this year and next year, deflation risks but did not see

  • What can the European Central Bank do?

    Draghi has made clear that the ECB is ready to do anything, should inflation unexpectedly fall further. The central bank also examine other unconventional measures, including a program for bond purchase ( “Quantitative easing / QE). “Whether the ECB again cut interest rates, or equal to adopt a broad-based bond purchase program, would probably depend on how strongly they corrected their medium-term inflation outlook downwards,” says Commerzbank economist Christoph Weil.

  • How will consumer prices evolve?

    the ECB expects that the inflation rate will increase somewhat again in April. Economist Weil explains why: The usual rise in prices for travel and hotel stays around Easter this year falls in April and not as in 2013 March. In addition, energy prices in April should not decrease unlike the previous year. This is suggested by Weil’s assessment about the trend towards higher gasoline prices during the Easter holidays. Overall, Commerzbank expects that inflation will oscillate in the euro area in the coming months by 0.8 percent.

  • Must consumers for food will continue to pay more than 2013?

    for now, yes, but the price of food rose in Germany last no longer as rapidly as in the past months. Since fresh fruits and vegetables is to have earlier due to the mild weather, the usual seasonal decline in the price of goods this year is expected to start earlier. 2013 had delayed the harvest, the cold spring. Falling prices for food are pleased consumers, but may total inflation again press something.

in a much anticipated speech at the annual meeting of central bankers from around the world in Jackson Hole, Wyoming, Janet Yellen has hinted that further increases in interest rates in the US are only a matter of time. “In light of the continued solid situation on the labor market and our forecasts for economic activity and inflation, I believe that the arguments in favor of an increase in interest rates have become stronger,” Yellen said.

said the Fed chief, the Federal reserve will be guided in its monetary policy decisions of the actual economic data and not from forecasts. Economic growth in the US currently lags slightly below forecasts. On Friday, the Ministry of Economy had announced a high gerechnetes to the current year growth of 1.1 percent. However, labor market and inflation trended towards the targets, Yellen said.


Fed chief Janet Yellen sees the time for long been targeted rate hike closer. The euro-dollar exchange rate responded temporarily to wide fluctuations.

The Federal Reserve had its key rate last increase in December last year. He is currently on a target level of 0.25 to 0.5 percent. Before him, the central bank had kept for years in the wake of the financial crisis at virtually zero. The Fed had indicated for 2016 up to four interest rate increases, but so far no realized. The next opportunity to do so would be at the meeting of the Federal Open Market Committee on 21 September.

The timing makes sense, find it on November 8 presidential elections. A win Donald Trump could due to its amazing statements – any renegotiation of debt, termination of free trade agreements, comprehensive tax relief – enable the markets in turmoil. The central bank would be well advised – similar to the Bank of England before the Proposed referendum on United Kingdom membership of the European Union referendum – to take precautions in order to counter possible distortions in the markets. The further the policy rate is removed in November from zero, the more leeway the Fed. The old saying “You do not, you’re not wrong,” in the (monetary) policy does not apply. Waiting for the Fed is risky. It’s time for the next rate hike.


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