It depends upon the result of the Presidential election—but we can make an educated guessby George Magnus / June 14, 2016 / Leave a comment
Read more: Ben Bernanke’s reasons to be cheerful
Today sees the start of a two-day meeting of the Federal Reserve’s policy-making committee, called the Federal Open Market Committee. Unlike the Bank of England, the European Central Bank or the Bank of Japan, the US’ central bank’s policy discussions nowadays are regularly about whether they should raise interest rates—and when might be a good time to do that. Although this is a mark of the American economy’s relatively successful performance since the financial crisis, the Fed is still in a tricky position, and keeps running into the economic equivalent of flak, sometimes thrown up by the US economy, and sometimes by foreign developments, notably in China and in the form of a strong US dollar.
Today’s meeting starts just over a week from the UK’s EU referendum, with widespread concerns, already evident in markets, that a “Leave” vote would precipitate financial instability. This week then the Fed is not expected to follow-up the rise in interest rates announced last December, the first hike since 2006. But higher US interest rates are still on the Fed’s agenda. As Sterling’s legs give way on the foreign exchange market before the referendum, we Brits should take note.
Some think the Fed is playing with fire in wanting to raise interest rates, and it is fair to point out that some of its best-laid plans have gone astray. In the spring of 2013, it announced plans to “taper,” or unwind, its quantitative easing programme of asset purchases. Financial markets in the US and around the world took fright, and the Fed had to back away until the end of the year, finally ending QE in October 2014. Twice last year, the Fed gave notice that it was inclined to raise interest rates but on both occasions, in the spring and again in September, it had to give in to domestic and Chinese economic worries, respectively. Finally, it raised the interest rate in December, but expectations of a…