Despite of the global strife, Fed has shown promising trust and confidence on US recovery. New trade data released on Wednesday also confirmed the stand of US at a bright spot.
At its December policy-setting meeting, according to minutes released on Wednesday, the Federal Reserve took close stock of plunging world oil prices and turmoil in Europe and decided that those negative trends would not undo that underlying strength.
“Several participants … suggested that the real economy may end up showing more momentum than anticipated, while a few others thought that the boost to domestic spending coming from lower energy prices could turn out to be quite large.”
The Bank of Japan and European Central Bank are expected to further loosen monetary conditions in coming weeks, while the luster has fallen from emerging markets that had been attracting record levels of investment in recent years. “These minutes defined the environment post-tapering,” said Robert Tipp, chief investment strategist at Prudential Fixed Income in New Jersey. “If the Fed moves aggressively it would suck up capital from emerging markets.”
The global conditions have indeed declined since the Fed’s Dec. 16-17 meeting, and the minutes note that the United States would not be immune if the world economy turns sharply down.
The fall in oil prices have given hundreds of billions of profit to the consumers. The December values are expected to be the same as well with the National Retail Federation forecasting 4.1 per cent overall growth over the year before.
Cornerstone Macro economist Roberto Perli said in a recent analysis that Even the steady drop in US bond yields says less about expectations for future interest rates than it does about the oil-driven path of inflation and its longer-term impact on the economy. Bond yields were dropping, he said, in part because the amount investors demanded to offset inflation was falling faster even as expectations for economic growth continued to increase.
“Investors might be tempted to assume that the bond market is sending a very bearish message about the US economy, but in reality the bond market is saying exactly the opposite. Growth expectations embedded in the 10-year yield have actually improved this month, and have been doing so ever since oil prices started to drop in the summer. The bond market shares our view that the drop in oil prices is a good thing for the aggregate US economy.” Perli wrote.
