Fed Warns Of Worsened Financial Climate

By: DailyForex.com

The jury may well still be out on anthropogenic climate change, but anthropogenic economic climate change seems to be beyond doubt – however, it makes the atmosphere decidedly chillier. 2016 dawned with a pessimistic hangover that has heralded a Bear market on fears of a Chinese economic stall and the dreaded unicorn of falling oil prices which must be an omen of some long forgotten economic calamity. Taken together, these factors have caused a very significant retrenchment in asset prices with the banking sector, oil-related stocks and commodities hardest hit. Most analysts think that the response has been overdone, but stocks will weaken until investors determine that they are at bargain levels and buying resumes.

Unsurprisingly, given the chilly start to this economic year, the Federal Reserve would not seem to be keen to continue with its policy of moving interest rates back towards historically normal levels.

In a statement given to Congress, Federal Reserve Chairman, Janet Yellen noted:

"Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers and a further appreciation of the dollar. Against this backdrop, the Committee expects that with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in coming years and that labour market indicators will continue to strengthen."

Mrs Yellen identified Chinese, state inspired, currency moves as a contributing factor to the current stock market volatility noting that it added to uncertainties over the Chinese economy; however, she did not foresee a “hard landing” for it. She noted that concerns over China were weakening commodity prices and this was leading to stress in economies that relied on commodity exports. Her comments were interpreted by analysts as a clear indication that US interest rates would remain unchanged at the Fed’s March meeting – which would seem like a safe bet in the current economic climate.

Dr. Mike Campbell
Dr. Mike Campbell is a British scientist and freelance writer. Mike got his doctorate in Ghent, Belgium and has worked in Belgium, France, Monaco and Austria since leaving the UK. As a writer, he specialises in business, science, medicine and environmental subjects.