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Fed has a crisis of confidence

Published Friday, September 18th, 2015

The markets read it right. They were only giving a 25% chance of a September rate rise and the Fed delivered another ‘not yet’ message. China has cast a big cloud over the global economy and the threat that it poses has caused the Fed to back peddle. The odds of a rise this year have been cut to 50% even though 13 of the 17 Fed policymakers are still expecting an increase by the end of the year.

The meeting concluded that “the recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term”. This rather bland statement hides a bagful of concerns and in particular that a Chinese hard landing will cripple emerging market economies and impact on an unconvincing US growth picture. The Fed increased this year’s US growth estimate to 2.1% but that is hardly reassuring when below 2% is recession territory.

The market reaction was confused. At first US stock markets moved up but by the close had given the gains away to close down -0.26% on the S&P. If you arrive at hospital expecting a member of your family to be out of intensive care only to find that they are still there should you be very worried or reassured by calming words from the medics that they are in good hands? Worried is the answer, especially if you are told they may still be in there next week (October) or next month (December).

to read the rest of the report, please click here

Posted by David Hufton