Forex Blog: Currency Trading News & Analysis.

March 8th 2005

Fed telegraphs rate hikes

Led by Alan Greenspan, the Federal Reserve has raised interest rates 6 times since the year 2000, when rates stood at an all-time low. Each time it has raised rates, the Fed has been abundantly clear in signaling future hikes. A common misconception is that the Federal Reserve actually determines the federal funds rate (ffr), from which all other important interest rates derive. In actuality, the Fed merely sets a ‘target’ for the ffr. Alan Greenspan has a great deal of credibility among investors and creditors; thus, the actual ffr is usually quick to converge to the target he sets.

This can have the unintended consequence of depressing risk premiums, which are usually tacked on to the ffr to account for general economic and monetary uncertainty. The result is below average treasury and corporate bond yields (which are derived from the ffr). It is any body’s guess as to the whether Greenspan and the current administration are deliberately pursuing a weak dollar policy. One thing is for sure: if Greenspan continues to telegraph future interest rate movements, bond yields will remain comparatively low. And that spells trouble for the Dollar. 

Read More: A new communication strategy to raise real yields?

SocialTwist Tell-a-Friend
Posted by Adam Kritzer | in Central Banks | No Comments »

Sponsored Offers

FREE Daily Email Updates

Enter your email address:

Delivered by FeedBurner

Have Questions? Want to Share Your Review?

Be heard. Please share your reviews today!

Neighboring Posts

© 2004 - 2018 Forex Blog.org. Currency charts © their sources. While we aim to analyze and try to forceast the forex markets, none of what we publish should be taken as personalized investment advice. Forex exchange rates depend on many factors like monetary policy, currency inflation, and geo-political risks that may not be forseen. Forex trading & investing involves a significant risk of loss.