This Week's Focus: The FED hesitates

This Week's Focus: The FED hesitates


The minutes of the last meeting of the Open Market Committee Federal Reserve (FOMC) US show increasing attention of members to the exchange rate of the dollar and the evolution of the global economy. These factors led to its members to decide, unanimously, to maintain interest rates in the US at the moment, despite all indicators of activity show by now a moderate expansion of the US economy with growth rates close to 2 %.

This action contradicts or qualifies the position communicated to the market a few months ago, in the sense that the Fed expected to raise rates four times in 2016 when it announced its first rise in the official rate after nearly 8 years of zero interest rates.

European recovery on the tightrope

One reason is the appreciation of the USD against other currencies, so that this rise in the exchange rate could negatively affect economic growth. Although no evidence of this, the fact is that the USD has appreciated against the euro since March 2014, more than 20%.

In contrast, Europe has been very well this depreciation of the EUR against the USD to help strengthen a weak economic recovery after the uneven hardness of the financial crisis in its various Member States. Therefore, the hesitancy of the Fed in the last meeting has special relevance for the euro zone, since it can neutralize the ECB's efforts to create inflation expectations and help raise consumption to GDP growth.

The USD depreciates momentarily

The most obvious evidence is that, following the decisions of the ECB and the Fed, the first increase monetary expansion and lower interest rates and, second, to keep waiting, have implied an appreciation of the EUR against the USD of more than 3.5%.

We expect the Fed to resume its monetary normalization in the coming months, and thereby the exchange rate EUR / USD reemprenda the way of appreciation of the US currency. This is now convenient for both the European economy, which is showing signs of slowing, as for the American who needs finance its growing deficit of balance of payments in which China plays a leading role.

We will continue very expectantly for a long time to the decisions of central banks to take the economic pulse.