Fed's George: Recent bout of volatility is not necessarily worrisome

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 2, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Córdoba) - Kansas City Fed Chief, Esther George on Tuesday said that the Fed should maintain a gradual pace of rate increases and that the economy is in a good spot to warrant additional increases in rates.

    Key Quotes

    "The U.S. economy has proven itself to be resilient to a wide range of shocks in recent years, including sluggish growth abroad".

    “After such a prolonged period of low rates, the FOMC is understandably cautious. Moving rates gradually may avoid unnecessarily jolting the economy or causing excessive financial market volatility. Even looking at developments so far this year, financial markets have been quite volatile. While taking a signal from such volatility is warranted, monetary policy cannot respond to every blip in financial markets. Instead, a focus on economic fundamentals, such as labor markets and inflation, can help guard against monetary policy over-or under-reacting to swings in financial conditions.”

    To a great extent, the recent bout of volatility is not all that unexpected, nor necessarily worrisome, given that the Fed’s low interest rate and bond-buying policies focused on boosting asset prices as a means of stimulating the real economy. As asset prices adjust to the shift in monetary policy, it is to be expected that the pricing of risk will realign to this different rate environment.”

    “Overall, it is important to remember that even after this first rate hike, monetary policy remains highly accommodative. Real interest rates continue to be negative and the Federal Reserve’s large portfolio of Treasury and mortgage-backed securities keeps downward pressure on longer-term rates.”

    “In communicating its intentions for further rate increases, the Committee has noted that it expects economic conditions will warrant only gradual increases in the fed funds rate, although adjustments ultimately depend on the incoming data. My own view is that a pickup in economic growth, steady job gains and modestly higher core rates of inflation will warrant further increases.
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