US dollar to rise along with rates
Published on 28.02.2018 15:12

Investors are bracing for more stock market turmoil over the coming weeks as the new head of the US Federal Reserve made clear yesterday that the recent volatility in world market won’t be a deterrent in the feds quest to hike interest rates.

New Fed president Jeremy Powell, speaking before the US congress yesterday noted that the US economy was in solid shape and that “headwinds have shifted to tailwinds”, implying that the worst is left behind.

Mr Powell also noted that he expects inflation to hit the Fed’s target range in the nearest future

“My personal outlook for the economy has strengthened since December, The FOMC (Federal Open Market Committee)  will continue to strike a balance between avoiding an overheated economy and bringing PCE price inflation to 2 per cent on a sustained basis.”

The recent turmoil in financial markets, where billions of dollars where wiped out didn’t seem to bother Mr Powell who noted that it won’t affect the economic recovery and should only be seen as temporary.  

“At this point, we do not see these developments as weighing heavily on the outlook for economic activity, the labour market and inflation. Indeed, the economic outlook remains strong,” he said.

The question is now not if the Fed will raise rates, but how many times with many predicting that there will be 4 rate rises which will leave the current bench mark rate a full percentage point higher than it is today.

The US dollar jumped after Powell’s speech as investors took positions in anticipation of further rate hikes,

“What the markets are telling you today and year-to-date is that interest rate hikes are expected and that’s getting priced in,” Medha Samant, director of Fidelity International investment .

The material published in on this page is produced by the FIBO group companies, and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC; furthermore it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

Andrew Masters

Analyst

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