MONETARY POLICY by Stewart Richardson
FX
How will markets react to a more aggressive FED?
Janet Yellen chaired
her
first
FOMC meeting in March, and the result is that market appears to believe that we have a more hawkish FED on our hands. Is the market correct in thinking this ? And if
so, what changes
should investors be thinking of making ?
One point that we would make at the beginning of this discussion is that the FED is an institution that changes slowly, and when a new course has been set, the FED usually continues on that new course for a long time...longer than most believe likely at the start (see chart 1
of Fed Funds rate back to the mid 1980s). With tapering of QE now roughly a third of the way through (from US$85bn a month down to US$55bn a month) and talk of rate rises in mid 2015, we need to try and understand just how far this tightening cycle will go.
FX TRADER MAGAZINE April - June 2014 11
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