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OTS: Brsen-Zeitung / Forever Low & | message


Forever low? / Comment on the panning strategy of the

US Federal Reserve by Kai Johannsen

Frankfurt (ots) – The recently announced strategy swing of the US central bank in the

Monetary policy will have far-reaching consequences for the international capital markets

to have. These effects will increase over the years, especially on the interest rate markets

be felt. The inflation rate in the US has been below target for years

the Fed of 2%. The US monetary authorities are now aiming for an inflation rate that will remain in the

“Over time averages 2%”. “That means after that

If inflation was below target for some time, the Fed now wants one

Reach the rate of inflation, which is moderately over 2% for some time “, so

Christoph Rieger, who heads interest and credit research at Commerzbank.

However, the Fed remains flexible by not specifying a time horizon

that it wants to achieve the average inflation target. Has in view

But Fed also in its strategy the employment situation in the largest

World economy. The statement has been changed. The Fed now wants to

focus on downward deviations from full employment after

previously there was always talk of symmetrical deviations. The Fed is reacting with this

to the sharp rise in unemployment due to the Covid-19 crisis, i.e.

the economic impact of the pandemic.

For the bond markets, the Fed’s panning strategy means first of all that

the market participants for the next few years from rate hikes by the Fed

can say goodbye. Rieger even assumes that the Fed will raise interest rates

not likely to rise for some time even after inflation has picked up.

The market has the rate hike expectations well into the future

postponed. The first Rate hike will only be discounted in three years. To

Judging by the market’s inflation expectations, this is still the case

premature. The one-year forward inflation rates obtained from inflation swaps

can be factored out, for 2023 there would still be an increase in

Indicate consumer prices below 1.9%.

Various other market participants see it that way too. The credit manager Muzinich

says something like: “The Fed is facing a situation that it probably very much

will not be able to raise interest rates for a long time unless

some structural changes in the economy are reversed, such as a

Increase in long-term productivity, which was great after the pandemic

is unlikely. “

This means that there will not be a situation in the bond markets that in

Expectation of higher key interest rates in the US government bond yields

attract. As a result, there is no pressure to increase interest rates or pressure on returns from the USA

going upwards, which is then about also in the Eurozone, for example with the

Bunds in the form of higher yields would be felt. That can take several years

avail themselves, because first of all, the badly battered must be

US economy, but also other world economies from by

Covid-19-induced economic shock recover. That won’t work in weeks or

Months. Only then is there a sustainable recovery

Interest rate increases and higher bond yields are to be expected. From the so far

propagated “lower for longer” with a view to the US interest rate policy becomes “low for

very long “or possibly a” forever low “?

The hunt for yield continues on the interest rate markets. Since the Fed and

other central banks buy interest-bearing paper, including corporate bonds,

the displacement processes observed for years (crowding-out of

Investors) move on to other fixed income areas, and there too the

Driving yields even further down. Even more market segments with zero and

The result will be negative returns. Issuers are always happy

more favorable conditions for borrowing. Companies will like that

use, the primary market will get on the part of the companies in the next few years

enough bond supplies at ever lower returns.

The cheap central bank money has in the past few years to a bull market

Stock markets contributed. The prospect of a persistent glut of liquidity

should therefore continue to support stocks. A counterweight to this, however, is the

Be the economic condition of the company: How many defaults does the

Covid-19 economic crisis after itself? That could change the mood

Quite a hail of stock markets

(Börsen-Zeitung, September 5th, 2020)

Press contact:

Stock exchanges newspaper

editorial staff

Phone: 069-2732-0

Further material:

OTS: Börsen-Zeitung

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