Global markets have been quiet this week ahead of Janet Yellen’s keynote speech at Jackson Hole on Friday, which is expected to shed some light on the Federal Reserve’s plans to raise interest rates.
Anticipation was heightened by comments from senior Fed members earlier this week suggesting a rate rise may be on the cards before the end of the year. However, Yellen has remained tight-lipped and is more than likely to stick with her current dove-ish strategy, perhaps preparing the markets for a move sometime next year.
Upbeat economic data from the US has fuelled expectations that the time to raise rates is growing closer, with a better than expected jobs report in July. However, inflation remains low and the threat of global uncertainty in the wake of Brexit may encourage the Fed to stick with current rates well into next year.
“The Fed could be viewed as being between a rock and a hard place because with the US economy looking like its firing on all cylinders,” says Dafydd Davies, partner at Charles Hanover Investments.
“The concern is that is those in emerging markets with international debt could find themselves in deep water if their borrowing costs increase. Yellen may need to use prose, rather then policy, to encourage strength in the dollar.”
Miranda Wadham on 26/08/2016
