FTSE Falters on Fed Split

The FTSE 100 was one of several global markets that faltered after the Fed appeared split on interest rates and there was uncertainty too over the policies planned by the European Central Bank.

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shareprices.com - Friday, July 07, 2017

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The interest rate issue dominated the headlines, leaving global share prices struggling as investors flocked to safe-havens.

The FTSE 100 slipped by 42 points, to 7,324, mirroring falls in Asia, which was one of the first markets to digest the US Federal Reserve’s last meeting minutes, which showed US policy makers divided as to whether they should raise interest rates, and also on how fast they should reduce the holding of bonds that the Fed had build up after the last financial crisis.

The ECB has also made waves by removing references to the easing bias following its June meeting. This, combined with the Fed’s chair, Janet Yelling’s desire to normalise monetary policy in the US is naturally a cause or concern for some investors. The natural response to a strengthening economy would be to re-evaluate rates, and normalize policies, but the concern that investors have is that this could reduce the flow of money in the markets, at a time when the policies are what has been supporting global asset prices. An increase in government bond yields would push up the cost of borrowing for both companies and countries.

The Fed’s split on the issue is because inflation had been stuck below two percent for quite some time, in spite of the fact that the employment market is strengthening and economic growth has been steadily improving.

 

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