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Wednesday, 19 June 20:55 (GMT -05:00)

Business And Politics News

Fed Raises Key Interest Rate. How Will This Affect Russian Economy?

The federal Reserve has raised the key interest rate by 0,25%. According to international experts, this may well make foreign assets (including Russian ones) less attractive in terms of investing.




The decision was made as the result of the recent 2-day FOMC meeting. The interest rate was raised up to 1-1,25%. At the same time, it’s interesting to note that the actual decision matched expectations, both from the international expert community and financial markets.
The related statement says that the Fed has recorded moderate economic growth in the United States. The PCE index estimating inflation has been decreased from 1,9% all the way down to 1,6%. At the same time, the Fed doesn’t deny another interest rate hike in the near future. If so, this is going to be a third interest rate hike this year seen after a long period of ultra-low interest rates that used to be unchanged for years.
Further down the road, the Fed is going to be guided by the inflation rate, inflation expectations, and the labor market stats when making another interest rate decision. Various international events are also going to be taken into account in this case.
At the same time, the report says that the Fed is going to start reducing their reserves. After various stimulating programs, the reserves have now reached 4,5 trillion dollars. With that said, they are planning to cut down on reinvesting in agency-backed mortgage securities and T-bonds.
As we have already mentioned, the interest rate hike didn’t come as a surprise since many of those financial experts around the globe had actually anticipated a 0,25% increase. For example, 95 out of 100 experts interviewed by Bloomberg said they expected such an interest rate hike. On the date the FOMC decision was about to be made, the likelihood of another interest rate hike was equal to 93,5%, which is confirmed by the related CME futures data.


At the same time, Masterforex-V Academy experts say that the Fed’s focus on inflation and labor market stats reveal the regulator’s further plans. To be more specific, the higher the Fed interest rates go, the more attractive the dollar assets become, thereby reducing the same financial attractiveness of other peers. That’s why Russian financial experts expect international investors to lose a bit of interest in Russian and other non-dollar assets. However, the impact is not going to be considerable since the markets have already taken the recent interest rate hike into account as it was nearly obvious the them.


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