WWN#22 – U.S. Federal Reserve Raises Interest Rate to 1.25%

 

fed-funds-rate-historical-chart-2017-06-15-macrotrends

Credits: Historical Federal Funds Rate


What’s Been Happening?

The Federal Reserve hiked up US interest rates by 25 basis points for the first time in March, its third upward move since the 2008 financial crisis. At the time, Janet Yellen who is the chair of the Board of Governors of the Federal Reserve System, expected rates to be increased twice more this year. Some economists are sceptical of this however, including global economist Anna Stupnytska from Fidelity International. She said that their base case is only for one more hike to occur this year, as a cyclical peak is being reached soon and the likelihood of a China slowdown weighing on “global inflation, markets and growth is fairly high”.

 

What Now?

At the latest Federal Reserve meeting on Wednesday, it seems Janet and policymakers were ‘feeling good’ about the economy and have forged ahead with an interest rate increase despite growing concerns of weak inflation. The target range for the federal funds rate is now between 1% – 1.25%.

A statement issued by the Federal Reserve indicated that “On a 12-month basis, inflation has declined recently and is expected to remain somewhat below 2 percent in the near term but to stabilise around the committee’s 2 percent objective over the medium term.”

One of the barometers that the Fed monitors is unemployment which dropped to a 16-year low at 4.3 percent in May. This may have given them the confidence to keep gradually lifting the low borrowing rates towards their historic norms.

Whilst the Federal Reserve maintains an accommodative stance on monetary policy, Yellen has said that it will be appropriate to move to a more neutral stance if they continue to move along the path [of interest rate rises].

What’s Next?

The journey is not over as the long-run interest rate is 3% which is the median estimate made by policymakers. According to 30-Day Fed Fund future prices, the probability of another rate hike later on in the year is currently at 2.5% for the July Federal Reserve meeting although this markedly increases to a probability of 30% by December. The timing of the interest rate increase would of course depend on the state of the US economy and its continued growth.

The bottom line for American consumers is that there will be an increase in their borrowing costs which may strain some households.

References:
https://www.bloomberg.com/news/articles/2017-06-14/fed-forges-on-with-rate-hike-asset-plan-amid-inflation-worry
https://www.investing.com/central-banks/fed-rate-monitor
http://www.bbc.com/news/business-40282066
http://www.abc.net.au/news/2017-06-15/us-federal-reserve-raises-interest-rates/8619182
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WWN 14# – Russia: No Stranger to Terrorism As It Strikes Again

 

St Petersburg - The Guardian

Image Source: The Guardian

What’s Been Happening?

There were at least thirty eight people killed in 2010 when two female suicide bombers detonated bombs on packed Moscow metro trains. This was linked to the Chechen insurgency that was occurring at the time and forced the nation’s capital to brace for a terrorist comeback after several years of calm.

In December 2013, there were two separate suicide bombings in the city of Volgograd in Southern Russia. The first killed 18 people and injured at least 44 near the Volgograd-1 train station. On the following day, there was another suicide bombing on a trolleybus in Volgograd where at least sixteen people were killed. The blast tore apart the trolleybus, leaving a disfigured carcass and dozens injured. Most security experts linked these attacks to an Islamist insurgency that has sought to disrupt the Olympic Games in Sochi which was starting in a months’ time.

 

What Now?

St Petersburg. On Monday, a bomb filled with shrapnel exploded in a metro train in Russia’s second-largest city. Initial reports stated that the device appeared to have been stacked with metal nuts and bolts to cause maximum damage and had been left in the carriage in a backpack. A huge hole was blasted in the side of a carriage, with the door blown off.

Officials have put the death toll from the explosion at fourteen people with around forty five others being hospitalised for treatment of their wounds. Although no one has claimed responsibility so far, there has been speculation that this is yet another terrorist attack that has been carried out by a suicide bomber with ties to an Islamic militant group.

Russian President Vladimir Putin was in the city when the blast struck and he visited the scene of the explosion on Monday night. He was cautious in his response, as “the reasons behind (the attack) are not clear yet, and so it would be premature to speak about them”.  He laid a bunch of red flowers at a makeshift shrine to the victims near the Teckhnologichesky Institut subway station.

The Investigative Committee (Russia’s top investigative agency) have suggested that the likely suspect in the deadly blast is a Kyrgyz-born Russian citizen by the name of Akbarzhon Jalilov. He is the person who may have also planted an unexploded device that was found and defused at another metro station shortly after the blast.

 

What’s Next?

  • Thousands of people gathered outside the Kremlin walls on Thursday in solidarity with the victims of Monday’s bomb blast in St Petersburg. More “anti-terror” rallies are expected to take place in cities across Russia on the weekend.
  • Russia’s state investigative committee will continue its search for more information about the incident, including background searches on the suspect and any of his accomplices. There have already been eight arrests made in connection with the attack.
  • The blast has also raised security fears in other countries such as France. Having already suffered a series of attacks, it announced additional security measures in the immediate aftermath of the St Petersburg incident.
  • Putin and Trump have agreed over the phone that terrorism must be “decisively and quickly defeated” which suggests that there may be talks of a joint military effort between America and Russia to hunt down the Islamic terrorist groups responsible for the attack. Given the political scrutiny between the two presidents, it is unlikely that anything will transpire but it is certainly a possibility.

 

References:
http://www.reuters.com/article/us-russia-blast-metro-idUSKBN17519G
https://www.theguardian.com/world/2013/dec/30/russia-second-explosion-volgograd
http://www.washingtonpost.com/wp-dyn/content/article/2010/03/29/AR2010032900007_pf.html
http://www.telegraph.co.uk/news/2017/04/03/saintpetersburg-bombing-casualties-explosion-metro-train/
https://www.theguardian.com/world/2017/apr/06/explosive-device-st-petersburg-residential-building-russia