U.S. Federal Reserve Keeping Interest Rates Steady: Good for The Global Economy?

Even though it raised uncertainty in the stock markets, does the Fed decision to hold interest rates steady be eventually good for the global economy? 

By: Ringo Bones 

Even though economists has describe the Fed’s decision to keep interest rates steady as “dovish”, many also said that the Fed chair Janet Yellen deciding to hold interest rates steady after their September meeting could eventually be good for the global economy in the long run for a number of reasons. Even though the rise of “emerging economies” during the past few years is largely fueled by the infusion of “cheap money” by the world’s various central banks adopting the policy of quantitative easing as an exit strategy from the global credit crunch of 2008.  

Many said that global economic worries – especially the China economic slowdown – is the main reason why the Fed decided to hold interest rates steady for now despite promising that sometime before the end of 2015 it might raise the cost of borrowing money. Other said that if the Fed decided to raise interest rates after their September meeting, the recent employment rate recovery of the United States could be affected negatively, but the main beneficiary of the Fed keeping the cost of borrowing money at an all time low could be emerging economies and other small economies elsewhere in the world. 

Bangko Sentral ng Pilipinas (B.S.P.) – the Philippine’s central bank – Governor Armando M. Tetangko, Jr. recently said in an interview that inaction from the U.S. Federal Reserve will ease some pressure off the Philippine government paying off its billions of dollars worth of debts from the United States, thus allowing the Philippine economy an easier time and use those funds intended for debt servicing to be invested into something more economically viable.    

Was Janet Yellen’s Appointment Into Heading the FED Happened at a Very Bad time?

Even though she was the first woman ever to head the US Federal Reserve or FED in its 100-year history is Janet Yellen’s appointment to head the FED happed at a very bad time?

By: Ringo Bones

Even though it was established back in December 13, 1913 with the enactment of the Federal Reserve Act in response to the series of financial panics – particularly the severe “panic of 1907”. In its 100-year history, no women had ever assumed command in leading the FED until now. Though the announcement came back in January 6, 2014 by President Obama that Ben Bernanke will be replaced by Janet Yellen – the first woman ever to head the US Federal Reserve – in its 100-year history Although she won’t be doing her duties until sworn in on February 3, 2014 after it was earlier announced, was Janet Yellen appointed into what will be a very bad time for the FED?

Even though a majority of senators approve of the president’s appointment of Yellen because she’s an advocate of the quantitative easing that started back in 2008 that prevented the collapse of America’s major financial institutions, Yellen plans to taper back the stimulus from 85 billion US dollars a month to 75 billion US dollars a month. Sadly, this is the very measure that made her appointment to head the FED “at a very bad time”.

From 2010 to 2013, the net worth of the word’s bond borrowing market was worth 999 billion US dollars when the FED’s economic stimulus package was still in full swing. When Janet Yellen takes over the FED by February 1, 2014 and the economic stimulus tapered down, this would mean that the net worth of the world’s bond borrowing market will start to worth a little less over time. Sadly, tapering down the FED’s stimulus package by 10-billion US dollars is no financially trivial matter devoid of consequences

Emerging market policymakers are now starting to blame the FED because its economic stimulus package had made their respective economies addicted to cheap borrowing costs – i.e. low interest rates – that an abrupt tapering off would result in an economic hard landing for emerging economies around the world. And thus emerging market policymakers started blaming the US Federal Reserve for its short-sightedness that made them too dependent on cheap borrowing costs.

But International Monetary Fund managing director Christine Lagarde says that emerging markets should have “first put their houses in order” and plan for the future given that cheap borrowing costs from the FED will someday end. Because of this the FED’s tapering of their economic stimulus – however gradual – will surely have an impact on the currencies of emerging markets - primarily affecting the purchasing power of the low to middle class citizens.  

Since the FED’s economic stimulus began, established companies in the United States and the European Union had been heavily using this cheap money to invest in emerging economies and those “poorer countries” neighboring those emerging economies. And this reached its peak back during 2010 to 2013. Looks like Janet Yellen – like President Obama – had assumed her post at a really bad time indeed, despite Yellen being the first woman ever to head the FED in its 100-year history. Hopefully, Yellen has been known to “thrive in adversity” when she was still serving as the vice chair of the FED under Bernanke from 2010 to 2014.    

Did The U.S. Federal Reserve Chairman Ben Bernanke Send The Stock Market On A Wild Ride?

Given the 48-hour long global stock sell-off hitherto unseen since the September 2008 global credit crunch, did FED Chairman Bernanke’s announcement to ease off the US economic stimulus caused it?

By: Ringo Bones 

The only thing that’s being proved by the 48-hour over 500-point plunge in the global stock prices is that the global stock market hates uncertainty. Sure, it can handsomely make profits in either wartime or peace, but the rather uncertain announcement of U.S. Federal Reserve Chairman Ben Bernanke back in Wednesday, June 19, 2013 of “taking the foot off the gas” on the U.S. economy’s 85-billion US dollar a month stimulus package if signs show that the U.S. economy shows signs of improvement near the end of 2013 had sent the global stock marketplace in a 48-hour sell-off – a global stock market plunge if you will. Not until did Friday came that the global markets started to stabilize after a two-day freefall. Given the market being spooked by such “economic stimulus ending announcement”, one wonders if our global economy is currently heavily dependent on the Obama administration’s rather liberal economic stimulus program. But doesn’t it, really? 

Every hedge fund manager who had either profited or had drastically minimized their loses during the September 2008 global credit crunch via the use of complex derivatives in hedging their investment portfolios have been since the start of 2013 started to advise their clients to be careful on their stock market investments since it is very likely that the Dow Jones Industrial Average could return to the 10,000 point mark around the end of 2013. Though despite such “scare mongering” the DJIA did manage to cruise well a little above the 15,000 point mark for much of May 2013 before it was sent on a volatile wild ride by June. 

While the June 19 announcement of FED Chairman Bernanke caused a global bond market sell-off that made the S&P 500 the worse it had been since 2011, many experienced and institutional investors had been quite busy snapping up safe haven commodities investments like gold and other precious metals that has since become “cheaper” since the 48-hour wild ride. But given the still high unemployment rates in the United States and the recent economic data showing the recent slowing down of the Mainland Chinese manufacturing sector, may now wonder if the rather artificially high stock market prices are just probably due to the Obama administration’s rather quite liberal 85-billion US dollar a month economic stimulus package / quantitative easing program.