Dt - MAR 15 2016, Time - 10:00 am
FED INTEREST RATE HIKE?
Apparently economic conditions had improved sufficiently to warrant a further increase in the target range for the federal funds rate. The labor market data and wage growth data are encouraging. The voice up boosted by latest Inflation data, which is higher than anticipated.
Declines in equity prices, a widening in credit spreads, a further rise in the exchange value of the dollar, and an increase in financial market volatility. Export data will be further stressed.
The spending and production data have been disappointing. Information regarding indicators of manufacturing activity, consumption expenditures, and inventory investment are also not up to mark. Global equity market volatility is also go against.
Widened concerns over policy and its direction. Financial health would be questioned viciously.
INFLATION OUTLOOK : Slowdown in China's industrial sector and the decline in global commodity prices could restrain economic activity in the EMEs and other commodity-producing countries for some time. Recent developments in China, including the possibility that structural changes and financial imbalances in the Chinese economy might lead to a sharper deceleration in economic growth in that country than was generally anticipated. Such a downshift, if it occurred, could increase the economic and financial stresses on other EMEs and on commodity producers, including Canada and Mexico. Moreover, global financial markets could continue to be affected by uncertainty about China's exchange rate regime. While the exposure of the United States to the Chinese economy through direct trade ties was limited, hence potential drag on the U.S. economy from the broader effects of a greater-than-expected slowdown in China and other EMEs.
CHINA FACTOR : Regarding the outlook for inflation, the additional sharp declines in energy prices and strengthening of the exchange value of the dollar were likely to hold down inflation for longer than anticipated, but inflation was expected to increase gradually as energy prices and the prices of non-energy imports stabilized and the labor market strengthened further. Inflation rising toward 2 percent would be an important element for further policy firming.
Alok Samantaray MD, Ray Research & Consulting Pvt Ltd