BoE warns of market volatility ahead of FED rate hike

“By making precise adjustments to the quantity of reserves in the system, the Fed was able to exercise very tight control over the federal-funds rate and was able to keep that market perfectly balanced so that the quantity of reserves in the system was exactly the same as banks’ demand at the Fed’s objective target interest rate”, Potenza said.

Yellen, however, may face a tougher time selling further hikes next year.

Rates on government bonds have climbed in recent weeks amid investors’ expectations that the Fed will raise its key short-term interest rate – now at a record low near zero – at a policymaking meeting next Tuesday and Wednesday.

A quarter-point rate increase is normally not such a big deal.

“We’ve got a heck of a commodity bear market here and the Fed’s about to raise interest rates. But the slower-than-expected real GDP growth and lower-than-expected inflation suggest somewhat later and slower policy rate increases than otherwise”, he said.

Statistics NZ changed its methodology in collecting data for the September survey to use more administrative data and reduce its reliance on surveys, while also ending its split of raw materials and finished goods in measuring total stocks.

However, these weaker set of economic data were unable to scale back expectations of rate hike in December which seems to have been baked in but still called into question the extent to which policy makers will raise interest rates. Bullard added that while the FOMC was closer on its forecast for core inflation (which excludes food and energy prices), it was also still too high, as was the St. Louis Fed’s core inflation forecast. If the Fed hikes the rate, the rupee will fall.

The Fed painted a similar picture in greater detail in its latest beige book report, a compendium of economic reports from the 12 regional reserve banks also released last week.

In other words, most of the new money was not lent out. Changes in that rate ripple through the economy, affecting employment, output and the price of goods and services. What happens then? Nobody knows, but we’ll soon find out.

Crude oil prices settled lower after rising as much as 4 percent as the market ignored a USA crude stockpile drawdown to focus on a build in distillates, including diesel, that was twice as big as expected. It won’t have anything to do with expanding or contracting the money supply as has been its tool in the past. The chairman, however, stressed that “the Fed will move slowly and cautiously in 2016 and monetary policy will remain accommodative”. The chart starts from six months before the first rate hike and goes on till six months after that date.

The US dollar failed to rally even after the strong US non-farm payrolls data, as traders bet the information was already priced into the greenback, with the broad US dollar index having gained 9 per cent so far this year. The FED, however, is weighing more heavily the amount of economic improvement since the downturn.

Economists have argued that Turkey is long overdue for an interest rate rise to rein in inflation and put a floor under the lira. “We expected inflation to rebound as the economy improved”, he noted.