Tough Call for the FED: Another hike on IR - Nicole Pabello Reports

In an article featured by the New York Times by Kevin Granville and Binyamin Appelbaum published the 18th September. Supposedly, by fears of inflation and weakness in the global economy, the FED’s meeting scheduled for 20- 21 September the result might come as one of the four hikes on the interest rates. The FED had openly agree on these hikes for 2016 after the fist hike in seven years of keeping it zero followed by the great recession.

In the article, it is analysed by segments many factors that would put pressure on the FED to decide whether if they should or not.

As many factors could include the unemployment rate (4.9% historically normal level) which accordingly to this number not necessary reflects the entire population. That reason ultimately would push towards to keep rates low.

The interest rate at the moment is considered to be a five points stimulus. But often pointed to be only 3 percentage, that would also push decision from the FED to not rise again the IR and promote the stimulus.

As some of the this facts might push to the FED to retain the same interest rate. For now, there is also the idea of deflation (not commonly heard in productive economies, except for Japan). Since the last decade, the US inflation “has fallen sharply” as stated in the NYT article, which, could lead to  fall down to a cycle of deflation.

What would this mean not only to US as their currency remains being the preferred currency for exports, but for foreign countries and reserves around the world?

A hike on IR for the emerging economies with tight trading relationship with US, like Latin-American countries might mean a slump in their economies and specific industries as the oil. The simply speculation for a IR hike from the FED shakes Mexican currency -closing markets 20 MXP per dollar, the highest exchange rate seen in a while.

Should it be more objective to the FED considers the side effects in a larger scale considering macro-economic factors that might affect directly to different economies?

With a globalized economy as it is nowadays and countries that rely heavily in exports for its GDP, pressure in their exchange rate could mean a slippery slope coming back at US in the long or short term.

Said that, the consideration of macroeconomic variables should be taken into account would include not only by the FED, but also by local media so they could also bring attention to the matter.

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