4 February, AtoZForex.com, Lagos – The president of the New York Federal Reserve, also a voting member on The Federal Central Bank Policy Making Committee, Bill Dudley in a recent interview has said that continued tightening conditions would weigh on the fed policy. He warned that financial conditions have tightened since the recent interest rate hike in December, and additional strength of the U.S. dollar could have significant consequences for the U.S. economy.
FOMC policy stance
In December, The Federal Open Market Committee (FOMC) raised its benchmark federal-funds rate a quarter-percentage point after almost a decade of maintaining a near zero rate. The move by the Fed signals the end of a monetary policy that began as a result of the worst financial crisis since the Great Depression. Financial markets have been in revolt since the rate hike, although Fed officials insist the policy is accommodative. Yellen has proclaimed that: “Policy remains accommodative,” “the U.S. economy has shown considerable strength. Domestic spending has continued to hold up.” In spite of this, major stock markets have witnessed significant falls, the S&P500 declined more than 8 percent.
Following the rate hike, the Central Bank assured more increases to come “with gradual adjustments in the stance of monetary policy” and that “economic activity will continue to expand at a moderate pace and labor market indicators will continue to strengthen”.
Dollar dip, Euro STOXX up
As the fed contemplates its next move on monetary policy, the rates however don’t look like they would rise soon as the federal open market committee at the January meeting which held last week declined to raise rates.
This has caused an overnight decline in the dollar against a basket of currencies, which gave oil prices a boost and caused rally in the European market at the open on Thursday. The pan- European STOXX 600 was higher by more than 1 percent. Several European corporates have reported earnings.
However, the wheels were set in motion in Asia and Wall Street where stocks were trading higher. Weak U.S. economic data suggested an interest rate hike in March was unlikely.
The weak dollar helped support oil prices which has experienced a year-long of volatility.
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