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

WWN #8 -The Arduous Fight Against ISIS in Mosul

 

map-of-mosul

Credits – Map of Mosul, Map Data Copyright 2017 Google


Who is ISIS?

ISIS is radical jihadist group that is notorious for their hatred of the western world, particularly the United States. They seek to re-establish the caliphate (an Islamic state led by a religious leader who has absolute authority) and become the only legitimate state in the world.

What’s been happening? The Battle for Mosul: ISIS vs. Coalition Forces

In June 2014, the Islamic State of Iraq and Syria (ISIS) easily captured the northern Iraqi city of Mosul. An estimated 30,000 soldiers fled when confronted by as few as 800 militants and the ISIS militants were able to overrun the western bank of the city overnight. ISIS used the momentum from its victory to seize large portions of the country in quick succession, reversing some of the achievements made by the United States in driving ISIS and Al-Qaeda out of Iraq over the last few years.

When the ISIS fighters took over the city of Mosul, they were able to seize large quantities of weaponry such as vehicles, arms and ammunition which strengthened their position in Iraq. Ironically, much of the equipment was probably supplied by the United States who is Iraq’s biggest weapons provider.

The fight to take back Mosul began last year on the 16th of October when a coalition of more than 30,000 troops commenced a multi-pronged offensive on multiple fronts in an attempt to corner ISIS. Slow but steady progress has been made as troops reached the edges of Mosul by the end of October and taking over most of the eastern side of the city within the following months. According to Iraqi estimates, it is believed that the number of Islamic State fighters has dwindled to around 1,000 from a previous figure of 6,000 in October 2016.

What Now?

On the 23rd of February, there was finally a major breakthrough after months of intense fighting between the coalition forces and ISIS in Mosul. Iraqi government forces took control of most of Mosul airport, meeting their first key objective for retaking the western half of the city from Isis. The advance represents a major win for the Iraqi government as its recapture means that the coalition now controls all of the roads in and out of the city. ISIS had also reportedly used it as a training facility and a factory for car bombs. Not anymore!

What’s Next?

A difficult task lies ahead as the battle continues for the western part of Mosul which has many narrow and winding streets. Due to this fact, armoured vehicles cannot easily navigate the area. Much of the fighting is expected to be done in close quarters in the midst of 750,000 civilians who are still residing there. It’s likely to take at least few more months for the rest of the city to be under the control of the Iraqi government.

References:
https://www.washingtonpost.com/world/insurgents-seize-iraqi-city-of-mosul-as-troops-flee/2014/06/10/21061e87-8fcd-4ed3-bc94-0e309af0a674_story.html?utm_term=.7eded1785232
https://www.theguardian.com/world/2016/nov/04/battle-for-mosul-maps-visual-guide-fighting-iraq-isis
https://scroll.in/latest/829759/iraq-coalition-forces-begin-operation-to-take-back-western-mosul-from-islamic-state
http://www.nbcnews.com/news/world/iraqi-forces-recapture-isis-held-mosul-airport-under-fire-state-n724496