Friday, 9 October 2009

المتداول العربىFed's Hands Are Tied

المتداول العربىFed's Hands Are Tied

It's a little-known fact that the US Federal Reserve Bank does not actually set interest rates. As a result, there is often a discrepancy between the "suggested" Fed rate and the actual rate.

Since the onset of the credit crisis, this gap has widened considerably, such that the "effective" benchmark interest rate is nearing 0%.

Some commentators are beginning to draw parallels with Japan, where interest rates have remained close to 0% for several years. If/when the global economy finds its footing, the Dollar could follow the lead of the Yen, and once again find itself a funding currency for the carry trade. The Economist reports:
If the effective rate remains near zero, the Fed will have to turn to more unconventional means of stimulating growth.