Risks Of The Federal Open Market Committee Essay examples

1853 Words Mar 7th, 2016 8 Pages
Doves Still Likely to Prevail at 15-16 March FOMC Meeting
Risky assets have faced a rocky environment in 2016 due to a plethora of concerns, including the economic outlook outside of the US. Meanwhile, worries about the American economy increased when it emerged that growth had significantly slowed during Q4. The appropriateness of the Federal Open Market Committee’s (FOMC) decision to raise its policy rate in December was, therefore, called into question. Rising financial market volatility and falling oil prices consequently raised the ante on the Fed to review the likely upward path of the federal funds rate. I have argued that the rate of increase in the policy rate will depend on diffusion, namely the extent of any emerging signs of weakness outside of the energy and manufacturing sectors. Recent US economic data has been respectable: auto sales remain high and non-farm payroll gains are robust. Even the beleaguered manufacturing sector improved in February, according to the ISM’s Report on Manufacturing Business. Recent macroeconomic data does not, therefore, make any case whatsoever for easing monetary policy by giving back the 25 basis points policy rate hike. Advocates of the Fed providing its perennial put to investors will consequently be disappointed. The key debate is whether the FOMC should continue its policy of gradualism in terms of raising the federal funds target or invoke a hawkish pause in the normalisation process. It appears that the views of doves on…

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