{"id":339835,"date":"2010-02-19T09:25:00","date_gmt":"2010-02-19T14:25:00","guid":{"rendered":"e2249889-c78b-43e3-9643-b1d7d4aa587b:398008"},"modified":"2010-02-19T09:25:00","modified_gmt":"2010-02-19T14:25:00","slug":"beginning-of-a-tightening-cycle","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/339835","title":{"rendered":"Beginning of a Tightening Cycle?"},"content":{"rendered":"

The Fed may not want the market to interpret its increase in the discount rate<\/a> as any kind of tightening move, but that won't stop participants from speculating that it is. <\/p>\n

In a note titled: Beginning of a Tightening Cycle?<\/i>, Kevin Pleines at Birinyi Associates noted that prior to 1984, the discount rate was the primary tool for rate policy. Since 1984, they have used the Fed funds rate.<\/p>\n

The current survey of economists by Bloomberg forecasts a Fed Funds rate hike in the third quarter of 2010.<\/p>\n

In the six months after a tightening cycle began, oil has has the largest gains at an average of 17%, Mr. Pleines noted. The S&P 500 gains 3% on average.<\/p>\n

Technology, health care and materials lead the sectors, while utilities, telecom and industrials lag.<\/p>\n

Both the U.S. dollar and the 10-year treasury declined after the first hike. The dollar index falls 2.9% in the following six months, while 10-year treasuries fall 7.6%.<\/p>\n

Based on Wednesday\u2019s release of the Jan. 27 FOMC minutes, IHS Global Insight had expected a move to raise the discount rate as early as the March 16 meeting. As a result, the timing of Thursday\u2019s announcement came as a surprise to Chief U.S. Financial Economist Brian Bethune.<\/p>\n

He said the surprise factor could have unintended consequences of not only pushing up market rates in the near term, but also fueling speculation that the Fed is already moving on a path to tighten monetary policy earlier than previously expected.<\/p>\n

\u201cHopefully, Chairman Ben Bernanke\u2019s testimony to Congress next week will shed some important new light on the Fed\u2019s policy intentions,\u201d Mr. Bethune said in a note.<\/p>\n

\u201cLike the moves by the People\u2019s Bank of China to raise bank reserve requirements, the Fed\u2019s move can be seen as a prelude to future interest rate increases and a sign that the easy money party may be close to an end,\u201d said Colin Cieszynski, market analyst at CMC Markets Canada. \u201cStill, actual interest rate increases may be some time away yet, particularly considering that today\u2019s lower than expected U.S. consumer price index, suggests that inflation remains benign pressures.\u201d<\/p>\n

Andrew Busch, global currency and public policy strategist at BMO Capital Markets in Chicago noted that the rumor was that the Fed had acted due to a CPI number that was going to be high.<\/p>\n

He believes it will take a month or two of actual job creation to get the markets to believethat the Fed Funds rate will move.<\/p>\n

What\u2019s interesting to him, is that the yield curve moved up Thursday before the hike and isn\u2019t giving much back.<\/p>\n

\u201cIt appears the market is assessing the risk remains to the upside for rates regardless if the Fed holds the very shortest of rates at 0.25%.\u201d <\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

The Fed may not want the market to interpret its increase in the discount rate as any kind of tightening move, but that won't stop participants from speculating that it is. In a note titled: Beginning of a Tightening Cycle?, Kevin Pleines at Birinyi Associates noted that prior to 1984, the discount rate was the […]<\/p>\n","protected":false},"author":4059,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-339835","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/339835","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/4059"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=339835"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/339835\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=339835"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=339835"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=339835"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}