The Federal Reserve is set to raise its key overnight interbank rate by a surprise 25bps next Tuesday,” our friend Peter Cooper wrote for araibianmoney.net, citing an “impeccable source from a top global bank.” This modern world is a trip, isn’t it? We’ve got news of a Sino/Aussie resource grab, details on Eastern European debt from our fund manager friend in Texas, Addison’s in Tampa shooting a documentary and now Peter -- a brit expat living in Dubai -- is scooping us on a U.S. interest rate rumor.
“By raising interest rates at this point in the cycle, the Fed will be both proving its confidence in the tentative economy recovery that chairman Ben Bernanke has proclaimed and underlining its commitment to preserving the value of the U.S. dollar at a time of mounting deficits and bond issuance programs…
“There will also be an inevitable revaluation of financial markets to reflect the higher cost of money. Again there is a risk that if confidence is not as strong as generally held, then financial markets will crash, rather than undergo a healthy correction…
“Reflationists will throw their arms up in horror at this action as imperiling a very fragile recovery. But it is a very fine judgment call, and a lot will depend on how much credibility the markets give the accompanying statements from the Fed about the likely speed of additional rate rises.
“However, the Fed has to keep its street cred and being a part of the gradual global tightening of interest rates -- after a long period of loose monetary policy -- should actually be better for the long-run health of the economy.”
We’ll keep an eye on the FOMC when they meet next Tuesday. Stay tuned…
“By raising interest rates at this point in the cycle, the Fed will be both proving its confidence in the tentative economy recovery that chairman Ben Bernanke has proclaimed and underlining its commitment to preserving the value of the U.S. dollar at a time of mounting deficits and bond issuance programs…
“There will also be an inevitable revaluation of financial markets to reflect the higher cost of money. Again there is a risk that if confidence is not as strong as generally held, then financial markets will crash, rather than undergo a healthy correction…
“Reflationists will throw their arms up in horror at this action as imperiling a very fragile recovery. But it is a very fine judgment call, and a lot will depend on how much credibility the markets give the accompanying statements from the Fed about the likely speed of additional rate rises.
“However, the Fed has to keep its street cred and being a part of the gradual global tightening of interest rates -- after a long period of loose monetary policy -- should actually be better for the long-run health of the economy.”
We’ll keep an eye on the FOMC when they meet next Tuesday. Stay tuned…
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