Fed is handcuffed on rate rise

Volatility in US equities is rising again on the back of the euro. On Monday morning the euro found support at the $1.05 level send equity futures up 65 Dow points.

Dollar commodities, including crude and precious metals, have been clobbered of late on the back of a surging greenback.

With this as a backdrop, the Federal Reserve is still jawboning its rate hike. Nothing could be further from the truth — economically.

However, the Fed does not operate in a vacuum, and may feel pressure to hike in the fall of this year as a pretense it will signal an improving economy.

I raise this as the only possibility of why we may see an end to ZIRP.

Central banks across the globe are cheapening their currencies in an effort to spur growth. Will Chair Yellen and the other governors really see a need to raise rates during a currency war.

As money flows into eurozone – since it will be treated the best – and US exports will hit the floor on dollar strength, the Fed will be forced to stay zero bound and will soon say “patience is golden” and not remove the word anytime soon.

 

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