how the decision of the FED affects the price and the rate

To change, in the middle of the electoral race, the dollar factor is decisive. Officials from the Argentine economic team have asked that the green paper note not be closed. They do not want scares, because history indicates that a currency that is too volatile generates uncertainty and keeps the votes away.

But officials are not just looking at the dollars coming through the agricultural settlements. Now they are paying close attention to what will happen thousands of miles from the city, specifically to the United States.

It turns out that in two weeks, the Federal Reserve will revise its rate policy. And why is it important? In a context marked by elections and with a country risk level hovering around 1,000 points, the eventual news increase interest rates in the United States this would be the worst condiment of an already thinned climate.

On the other hand, a lower rate could be a relief for the national economy. It turns out that, on the one hand, international credit would be more accessible, in a scenario in which, with the increase in yields, the government lacked voluntary funding, the main reason for which it had solicited the credit. 39, badistance from the International Monetary Fund (IMF). , cheaper.

And what does the experts predict with the fees? First of all, you can not ignore that the political climate in the United States It is very hectic. US Federal Reserve Chairman Jerome Powell was recently accused by his country's president, Donald Trump, of putting into practice an excessively hard monetary policy that he believed was counterproductive. he reflected on what is best for his country's economy.

Just a few months ago, the White House leader came to declare that the Fed was getting "crazy" and that was "out of control" when, in early December, he announced that he saw with marked optimism the vigor of growth and the behavior of inflation.

However, the Fed slowed the rise for a while, which helped defuse the tension and calm things down. But already entered the second quarter – with the worsening of the trade war between the United States. and China, which is jeopardizing the already moderate estimates of the level of activity at the global level, is beginning to understand the possibility that at the next meetings of the Monetary Policy Committee of the Central American Bank will decide to reduce interest rates if necessary

In this direction, The market discovers that at the June 19 meeting, the Fed will keep interest rates unchanged. Even according to the evolution of the trade war, he could act accordingly by reducing them at the next meeting in July.

"All indications are that Powell, on whom Donald Trump is still lobbying, can adopt the" wait and see "strategy, as he did at the last meetings of the body he chairs. more than ever, the "wait and see" could make sense, "says Gabriel Holand, CEO of HR Global.

Following the new scenario, investment banks, funds and Wall Street badysts have begun to refine their forecasts. Barclays is now expecting a half – point interest rate cut in September and another quarter before the end of the year, while the JP bank Morgan expects a loss of half a point two months before December, according to Wall Street. Newspaper

For its part, Portfolio Personal Inversiones (PPI) pointed out that "it is more likely that the reduction will be reduced than the next 8 meetings." For the moment, the FedFund rate range remains between 2.25% and 2.5%.

Of course, everything will depend on what happens in the trade negotiations with China, which will take place in the coming weeks, and the reaction of the markets. Only then would Powell have more data to make the decision to reduce rates.

"If the trade war continues to grow, there will be a huge drop in investment in the world and we will go into recession, the Fed will not be able to do enough to control this fall if we continue with this war." commercial, "said Alberto Bernal, of XP Securities, who expects significant declines in the rate if the supply persists.

"What we have to take into account, is that the market expects not one but three cuts from the Fed this year. But for the moment, Powell can wait, "concludes Holand.

Government crosses fingers

The fact that the Fed should keep its interest rates unchanged and that even, depending on the evolution of the trade war, can be lowered, helps to dispel fears of an adverse scenario.

If the opposite scenario occurs, it is more likely that emerging market capital will migrate, which could have a very negative impact on countries whose financial situation is highly exposed to external movements, such as Argentina. Y this would logically have an impact on the price of the greenback.

For Matías Roig, director of Portfolio Personal Inversiones, "from a financial point of view, a reduction in the reference rate is good news for emerging markets in general and for Argentina in particular".

In short, the government of Mauricio Macri, which counts the days missing for the OSP and compares them to the Reserve Dollars of the Central Bank to calculate for how long it will be able to maintain exchange stability, see in the new international scene an extra oxygen charge.

For his part, Francisco Mattig, a strategy badyst at Consultatio Investments, said that "it can not be denied that it is good for Argentina that Powell, president of the Fed, has demonstrated opening with regard to a possible reduction in rates ".

"I think the government is celebrating the new scenario, since it's better to enter the elections phase with lower interest rates in the world than the other way around," he said. declared.

Why this change in the Fed's vision?

"Until the end of last year, the scenario that prevailed in the United States was very clear: high growth economy, full employment and latent inflation.

Thus, the Fed was in a contraction phase, increasing its rates (in December, they had reached 2%) "and not only do not inject money, but absorb it gradually", says the l & # 39; economist Luis Palma Cané.

In addition, at the beginning of the year, forward rate contracts augur three additional increases; By the end of 2019, a level of at least 2.75% will be expected, which has been reaffirmed in successive meetings held until April this year.

"But with the resurgence of the trade fight with China, the uncertainty generated by Brexit in the UK and the technological war that has made the Huawei phone manufacturers hurricane, among other things." other conflicts, the "fundamental ones" deteriorated, "adds Palma Cané.

All this forced recalculate the growth forecasts not only of the United States but also of the world, suggesting a more pronounced deceleration than expected at the beginning of the year.

Now the ant of the FedIt should grow by 2.1% instead of the 2.3 expected in December, and predicts lower inflation (1.8%) than that announced three months ago (1.9%).

In a statement, the institution's monetary committee pointed out that the expansion of economic activity in the United States had "slowed" compared to the fourth quarter of 2018 and that "recent indicators show lower growth of spending and investment of household enterprises ".

After a 2018 year that ended with a growth of 2.9%, forecasts for the first quarter oscillate between 1% and 2.1%, according to economists.

"The deceleration of the global economy would be negative on the side of Argentine foreign tradeas this would imply a lower level of activity, a downward pressure on commodity prices and capital outflow from emerging countries due to an increase in risk aversion " adds Agustín Cramo, International Markets Analyst.

However, faced with this new scenario, the Fed reacts and, through some of its members, announces, more or less explicitly, depending on the case, a correct change in its monetary policy.

"These days, the conclusion is clear: for the moment, there will be no further rise, it should not be ruled out according to the evolution of macroeconomic indicators, a slight and gradual reduction of these ", concludes Palma Cané.

Whatever the case may be, what will happen in the coming months will depend to a large extent on the evolution of trade conflicts.

In the case of the United States with Mexico, the problem will probably be solved as soon as possible, while the one with China will be subject to the outcome of the meeting between the two presidents in Osaka at the end of the month, at the G20 summit.

Then, in this scenario, the protagonists will be Trump and his Chinese pair Xi Jinpin. And beyond the enormous weight he has overall with the decisions he has made, Powell will continue to be a supportive player.

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