Heroes of Ukraine

«Market Leader» - news and previews making you rich.

Tuesday, 17 September 07:03 (GMT -05:00)



Business And Politics News

Fed’s Interest Rate Hike Says NO to Super-Cheap Money


The Fed’s interest rate hike has put an end to the era of super-cheap money in the USA. For other countries including Russia, this means tougher competition for foreign loans and investments. A lot has been said about the Fed’s money printing within the scope of QE as well as about low interest rates. The Federal Reserve ended QE more than 12 months ago. However, the decision to start raising the interest rates was a truly major event for the international community. The decision to raise the interest rate for the first time in 9 years was made on December 16, 2015.

 

 

 

 
Still some experts believe that financial markets have already taken this event into account which is why it is not going to have considerable impact on them, especially as the interest rate hike was just 0,25%. However, this event is important because it started a new era without super-cheap money, which is going to have long-term effect on the global financial system, especially if the Fed implements some other rate hikes in 2016. At the same time, this event started the process of balancing money-and-credit policies in the USA, which owns the world's major reserve currency and biggest economy. That is why the Fed's interest rate hike is an event of international significance. This decision is definitely going to affect all major developed and emerging economies, including Russia. Apparently, Janet Yellen and her colleagues are perfectly aware of the fact. However, they are used to being guided by national interests first. Basically, that's why the Fed started cutting the rates in 2007 and 2008 to hinder the housing crisis and avoid a major crisis through cheaper money pumped into the national economy.  
 
The cheep money was expected to let American banks expand the lending on more favorable terms and conditions for retail customers and major companies in order to back the fragile economic growth in the USA at that time. However, the cheap dollars printed for the USA and lent at low interest rates started fleeing the country and spreading all around the globe through investing in emerging economies – their high-yield stocks and bonds – as well as exchanging them for currencies with higher interest rates or just investing in foreign businesses. That is why emerging economies were among those who benefited from those cheap dollars most of all. The list includes China, Brazil, Russia, Turkey and other economies. However, now the cash flow is definitely going to reverse and go back to the USA since American bonds and stocks are now regaining their investment attractiveness once again. For those emerging economies, this is going to be a tough game resulting in devaluation of their currencies, stocks, bonds as well as more expensive loans and significantly lower foreign investments. Still, this is not going to happen in an instance. It will take years to feel the impact of the Fed’s interest rate hike, which is probably not going to be the only one over the next few years. For now, international experts are predicting at least 2 more hikes in 2016. The Fed is aware of the negative consequences for the entire world, which is why Janet Yellen and Co hesitated all that time before making this crucial decision. They say the Fed was going to implement the decision 2 months ago, however Janet Yellen aborted he decision at the last minute due to poor economic data coming from China. At that time the Fed decided to wait for the sake of American businesses closely associated with China. However, they couldn’t delay the hike forever because this could have undermined the Fed’s image in the eyes of the international financial, trading and investment community. On top of that, no economy can exist in an artificial environment of super-cheap money forever since this brings a lot of soap bubbles in housing, stock and commodity markets.
 
0,,18923634_303,00.jpg
That is why the Fed eventually decided to raise the interest rate for the first time in 9 years amid a pretty strong year for the USA its currency, labor and stock markets. A new cycle has begun. It will bring more expensive loans and higher bond yields. By the way, U.S. bonds are treated as the world’s most reliable investment assets.
 
For the rest of the globe, this means that the U.S. Dollar is going to get stronger and dollar loans are going to be less affordable and abundant. Without any doubt this means tougher competition since dollar investments in emerging markets are going to become scantier and wiser. Nobody is going to be an investment spendthrift from now on.  
 

 

You are free to discuss this article here:   forum for traders and investors

 

Add to blog
Got a question? – Ask it here »
 

Fed Cuts Key Interest Rate For The First Time In 10 Years

The U.S. Federal Reserve is reported to have cut the key interest rate, which is something really outstanding since the Fed has done it for the first time since 2009.

Publication date: 11 August 03:05 AM

New Prime Minister Names Brexit Date

It seem that the new Prime Minister of the United Kingdom is really determined about everything related to the Brexit. The process is expected to start in later 2019. Boris Johnson's standpoint on the matter didn't come as a surprise to the international expert community, Market Leader reports. The thing is, he has been well-known for being an advocate ad big supporter of quitting the European Union in general, and doing so without a major agreement in particular, which is also known as the hard Brexit scenario. 

Publication date: 07 August 06:54 AM

Johnson Launches Hard Brexit Ad Campaign

Boris Johnson, who has recently been appointed new UK Prime Minister, is on his way to launch an ad campaign to promote the idea of quitting the EU the hard way, which is also known as the hard Brexit. For those of you who don't know, the hard Brexit scenario implies quitting the European Union without signing a major agreement.

Publication date: 31 July 11:43 AM

U.S-China Trade War Is Sponsored By Consumers

According to the IMF, consumers and producers are the biggest losers in the trade war between the United States and China. Despite growing duties, American companies are not in a hurry to move their production back to the USA.

Publication date: 12 July 01:19 AM

US-China Trade Conflict May Trigger Another Global Financial Crisis

Beijing and Washington are one step away from escalating their trade conflict. The confrontation may harm the entire global economy. Some experts belive that the trade war may also trigger another global financial crisis. At this point, the parties seem to have come to a standstill, which is why the chances of the conflict escalating into a move severe trade war are still growing.

Publication date: 18 June 10:18 AM

WTO Lowers Global Trade Growth Forecast

 WTO experts are reported to have revised their forecast for the pace of global trade growth. The renewed forecast names figures below the previous ones - 2,6% against 3,7%. It's also interesting to note that the previous forecast for 2018 failed to match the actual figures.

 
Publication date: 19 May 02:58 AM

How to Protect Investment Capital in 2019?

Existing political and economic risks are pushing international investors into thinking about the security of their investment capital. Chasing big profits becomes secondary to this kind of security.

Publication date: 31 March 11:26 AM

EU Comes Up With Workaround to US Sanctions

The representatives of Germany, France, and the UK have registered a company to let it trade with Iran despite the US sanctions. The company still needs to be approved by 28 EU members.

Publication date: 31 March 02:33 AM

Beijing and Washington are getting ready for the final talks

Publication date: 17 February 08:58 AM

US-China Trade War Reaches Next Level

Washington and Beijing have announced a new round of talks. International experts say that the trade war is indeed going to a whole new level.
Publication date: 08 January 10:17 AM