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The United States suffered heavy losses Wednesday after the Federal Reserve made it clear to them that it would not raise US interest rates this year, as market expectations about the tone cautious US Federal Reserve continue to show up.
The US Federal Reserve remained unchanged in the previous range of 2.25% to 2.5% on Wednesday, in line with market expectations, meaning that the content of the statement accompanying the rate announcement interest was more worrying than the announcement of the interest rate.
Most members of the Federal Open Market Committee (FOMC) waived two interest rate increases in 2019, while suggesting a single increase in 2020.
According to another statement, the Fed's efforts to reduce its balance sheet by about $ 5 trillion, through quantitative easing, would end prematurely because of its impact on global financial stability.
According to the Fed, US growth has slowed relative to a "stable" rate of the last quarter of 2018, which should help reduce inflation in the coming months, which means that the bank is under pressure for increase interest rates.
However, that's not why he chose to continue to "be patient" before raising his rates. The faltering global economy, the volatility of foreign financial markets and the decline in domestic inflationary pressures combined, explain Wednesday's political message.
The Fed said: "In view of the changing global economic and financial situation and the pressures of silent inflation, the Commission will be patient as it will eventually set future adjustments in the range of target prices of federal funds ".
Markets are concerned about the Fed's decisions because of the impact of interest rate changes on international capital flows. High rates, compared to those offered by other central banks, are generally of interest to international investors and speculators in the short term.
The Fed said in January that it would be slower to raise interest rates this year because it needed time to monitor the future course of the global economy, as the slowdown abroad could easily undermine growth and inflation prospects in the United States.
This change comes against a backdrop of a sharp and lasting slowdown in the Chinese and Eurozone economies, which would have been largely caused by President Trump's trade war against China.
In the end, the direction of the dollar will be determined from here, as in Europe and elsewhere, like the Fed. Most analysts believe that if growth in Europe resumes and the ECB decides to raise interest rates next year, the US dollar could experience a prolonged decline.
The US Federal Reserve has raised its interest rates four times in 2018 and has increased its cost eightfold since the end of 2015, due to rising inflationary pressures on the economy, which require a more aggressive monetary policy. strict.
But this interest rate policy has attracted capital from other economies or has prevented them from coming out of recession in recent times and has also raised the performance problem that the prices of other financial assets must meet for investors to meet. feel comfortable with keeping them.
That is why emerging market currencies were crushed last year and the global stock markets were very volatile, with high interest rates making investors comfortable with the dollar . They also counterbalanced economic growth and saw the value of stocks fall automatically.
"Based on discussions at previous meetings and progress made in standardizing the size of the Federal Reserve's holdings of securities and the level of reserves in the banking system, all participants agreed it was appropriate for the moment that the Commission provide additional information on its directions this year. The US Central Bank will no doubt cease raising interest rates in 2019.
On the other hand, the Federal Reserve's policy of cleaning up its balance sheet has not been flawless, which has also led to the rise of the dollar by the international financial system, which has led to a shortage that has helped to strengthen the value of the US currency.
This is an additional factor that helped the US dollar control the currency market last year, from a 4% loss to a profit of nearly 5% from 2018, but the Fed said Wednesday it was time to reconsider his efforts. Reduce your balance sheet.
The balance sheet of the Federal Reserve has soared from $ 870 billion before the financial crisis to more than $ 4,500 billion in 2015, almost entirely as a result of quantitative easing. This led the Federal Reserve to create new dollars to buy government bonds in the hope of stimulating growth and fueling inflation by lowering market interest rates.
Since then, he has tried to reduce the balance sheet by simply stopping investing the money he receives from the government each time one of the bonds on his balance sheet runs out, a regular withdrawal of liquidity from the financial market. But he also reversed this policy on Wednesday.
"The average level of reserves after the FOMC's closing of its global share of securities at the end of September should be slightly higher than the level of reserves needed to implement monetary policy effectively," the Fed said. .
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