As we wrote yesterday, we expected Janet Yellen announced that the Fed would have postponed the rate rise.
Yann Quelenn
As we wrote yesterday , we expected that Janet Yellen announced that the Fed would have postponed the rate rise. However, Yellen has refused to admit that the current strategy of the Fed to normalize monetary policy has so far proved ineffective. He noted that the overall financial conditions are now less favorable for growth. In particular, unemployment rates have fallen, but the improvement of working conditions did not provide the expected effect, namely a fair wage growth, needed to push inflation towards the target of 2% of the Fed.
Yellen has also called reluctant to raise rates too drastically, because that could push the economy into recession. The truth is that the US debt is too large (18 trillion USD) and the interest on that debt would explode, if interest rates would increase too. That’s why Yellen is even thinking of negative interest rates, to prevent this from happening, and especially to avoid recession. However, sooner or later, inflation is necessary to clear the debt, but that does not happen in the near future because, in our opinion, the market conditions are strongly overvalued. As a result, we think highly likely a QE4, which would inject fresh money to save the GDP. We are no longer in a phase of divergence between the monetary policies or the political normalization. We are firmly in the territory of negative interest rates and Yellen are considering this option, even if it says “not sure about whether the Fed can do.”
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