Fed Seen Looking Past Russia Crisis as U.S. Growth Picks Up By Jeff Kearns, Christopher Condon and Steve Matthews - 17 ธ.ค. 2557 06:19:14 Russia’s economic crisis won’t stop the Federal Reserve from dropping a vow to keep interest rates low for a “considerable time,” economists said, even as policy makers may acknowledge global risks have intensified. Central bankers meeting today and tomorrow may say they’re monitoring markets carefully as Russia’s currency collapse threatens to destabilize other regions, said David Stockton, a former Fed research director who led presentations of economic and financial data for policy makers. At the same time, they will keep their focus on U.S. economic strength and probably replace the language on timing with something that says they’re going to be patient with rate rises, he said. “Policy moves slowly and deliberately and in response to a full set of evidence accumulated since the last meeting, and not in response to the most high-frequency data from volatile financial markets,” said Stockton, a senior fellow at the Peterson Institute for International Economics in Washington. Officials don’t want to signal that the Russian crisis will “deflect them from the path that they’re on, which is probably a tightening in the middle of 2015.” The ruble plummeted into a free fall today as panic swept across Russian financial markets after a surprise interest-rate increase failed to stem a run on the currency. That contrasts with a strengthening U.S. labor market and the boost American consumers are getting from cheaper gasoline. Contagion Effects Fed Chair Janet Yellen and her colleagues probably won’t identify overseas markets as a policy concern at this meeting, and may not until they cause “enormous demand” on the U.S. financial system, said James Smith, who helps oversee $1.45 billion as chief economist at Parsec Financial Management Inc. in Asheville, North Carolina. “It’s going to be discussed, but the only impact it might have is that it makes it more important to reiterate their plan to gradually reduce stimulus,” Smith said. “It’s not their job to worry about the rest of the world.” Sixty-eight percent of 56 economists surveyed by Bloomberg late last week said the Federal Open Market Committee will drop its pledge to keep interest rates near zero for a “considerable time” and instead adopt a word such as “patient” to describe its approach to policy. Only 23 percent said the committee will keep “considerable time.” ‘Policy Flexibility’ “The FOMC would like to be market-neutral,” Dana Saporta, director of U.S. economic research at Credit Suisse Securities USA, said today in an e-mail. “This means that if the FOMC does remove ‘considerable time,’ it probably will replace it with language that still retains a great deal of policy flexibility.” In a surprise move today, the Russian central bank raised interest rates by the most in 16 years, taking its benchmark to 17 percent. That failed to halt the rout in the ruble, which has plummeted to almost 70 rubles a dollar from 34 as oil prices dived by almost half to below $60 a barrel. Russia relies on the energy industry for as much as a quarter of economic output, Moody’s Investors Service said in a Dec. 9 report. Jason Furman, chairman of the White House Council of Economic Advisers, said today at a briefing Russia’s economic slide will have little impact on the U.S. as exports to Russia amount to about 0.1 percent of the American economy. “We have enormous domestic strengths in terms of our consumers, their confidence, their increased spending,’ he said. Advance Preparation At the Fed, most preparation for FOMC meetings is completed days in advance. Officials entered the meeting today with a set of policy choices that were framed in a manual known as the Teal Book. The options aren’t binding and Fed officials can always negotiate their own statement language. The timing of events in Russia makes it possible that policy makers would hear from the Fed’s international and financial stability experts on the risks around the decline in oil prices or Russian output. The Fed also uses models to study the global economy that could run simulations on the impact of currency movements or a slide in oil prices on world-wide growth. Though the Fed’s mandates are related to the U.S. economy, officials also must ‘‘make sure it does no harm” in policy decisions that may worsen a debt crisis that hurts trade and the outlook for growth, according to Brian Jacobsen, who helps oversee $234.6 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin. “The Fed is keenly aware of these risks,” Jacobsen said. “A month ago, I thought the Fed would remove the ‘considerable time’ language and replace it with something along the lines of being patient when it comes to removing monetary accommodation. Now I think the Fed is going to be patient in removing the considerable time language.”
Posted on: Wed, 17 Dec 2014 10:12:29 +0000