Fed set to lift key interest rate

Written on November 20th, 2016 in politics Comments Off

Published on World Socialist Web Site WSWS, by Nick Beams, Nov 19, 2016.

Financial markets have priced in as a virtual certainty that the US Federal Reserve will raise its base interest rate when it next meets on December 13–14. Fed chair Janet Yellen lifted expectations of a rate rise when she told a congressional hearing this week that such a move could “become appropriate relatively soon” … //

… Every increase in the value of the dollar increases the real debt burden of dollar denominated loans and impacts on the balance sheet of the companies that issued them. If investors withdraw cash, then companies and financial institutions will have difficulties in paying back debt.

In other words, emerging markets, which had previously enjoyed dollar liquidity as investors searched for yield in an environment of near-zero and even negative interest rates, could face a dollar shortage as interest rates and bond yields start to rise.

It is also far from clear what will be the impact on the two most important central banks after the US Fed—the European Central Bank (ECB) and the Bank of Japan (BoJ). The governing council of the ECB will next month set out the future of the asset purchasing program which is due to end in its current form in March 2017. ECB president Mario Draghi has indicated that there would be some form of extension, but that was before the rapid rise in bond yields that followed the Trump victory.

Similarly the Bank of Japan faces new conditions. In September, the central bank committed itself to lock in the interest rate on 10-year government bonds at zero as a central plank of its monetary policy. This week the yield went above zero for the first time since the policy was announced. If it now implements its “yield curve control” policy, a situation may well develop where Japanese government bond yields are under international pressure to rise while the BoJ is working to suppress them.

While US markets are enjoying a Trump boost, there are concerns among fiscal and monetary conservatives about the state of the international financial system and the consequences of a sharp rise in the value of the dollar … //

… (full text).

Links:

Erdogan ‘disillusioned’ with Obama’s policies, on RT, Nov 19, 2016;

Demonetisation has Left India’s Food Markets Frozen – and the Future Looks Tense, on Scroll.in, by M Rajshekhar and Abhishek Dey, Nov 18, 2016: the liquidity crisis has affected both the trade in food and the planting of the winter crop;

UN talks tangle over cash to ease climate pain for poor, on Eco-Business, Nov 18, 2016: developing countries may not get the cash they need to deal with worsening droughts, floods, storms and sea-level rise;

Greece’s Public Health Services on the brink of collapse, on Defend Democracy Press, Nov 17, 2016;

Pakistani doctor gives free medical care to millions, on The Asian Age, Nov 17, 2016: 79-year-old Dr Adibul Rizvi roams the crowded halls of his life’s work every day from 8 in the morning until midnight or later;

Why Economic Recovery Requires Rethinking Capitalism, on Institute for New Economicariana Mazzucato, Nov 15, 2016;

Forward the Commons, a unifying political vision for Europe, on open Democracy, by SOPHIE BLOEMEN and TILL GENTZSCH, Nov 14, 2016;

Die andere Wirklichkeit – Dr. Daniele Ganser, 92.53 min, von Frubi TV, er sprach am 1. Nov 2016 an der TU Dresden;

Ideas for the struggle, Organizing for Socialism in the 21st century, on Socialist Project.ca, August 2010;

… and this:

I am Sailing, from Gavin Sutherland:

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