Wall Street felt relieved as the Federal Reserve held off on raising interest rates. On the other hand, one top security watcher maintained that the investors need not stress in regards to forthcoming rate increments. It is based on the grounds that the Federal Reserve is really terrified that any such activity would toss worldwide financial markets into turmoil. William Lee, Citigroup’s Head of North America Economics held that he has some concerns with regards to lack of liquidity in the bond markets which would sideline any Fed activity for some time in the future. Lee seemed worried over the fact that even though the Fed is reassuring the investors that it is going to increase the rates gradually, the turnout of the bond market since the crisis is troubling to some extent. As per Lee, new regulations expected to reinforce the well-being of the monetary framework have really had the inverse impact.
Impact of Greek crisis, oil and dollar value
Lee isn’t the only one analyzing the bond markets. After the Fed’s Open Market Committee left rates unaltered a week ago, the overseeing chief at The Lindsey Group, Peter Boockvar, noticed that the Federal Reserve is punting again on any dedication to the timing of raising rates, most probably as a result of the news on Greece. The Greek debt crisis has left numerous investors pondering about the potential aftermath if the Greek default in their payments.
Also, because of the drop in oil prices and a strong dollar rate, it is believed that the Fed will not be raising the rates until next year. Another group of analyst believes that investors need not stress in regards to up and coming rate increments, in light of the fact that the Federal Reserve is really nervous that any such activity would toss worldwide security markets into turmoil. William Lee also maintained that an absence of liquidity would sideline any Fed activity until at least December despite its eagerness to move the rates up from zero. The Fed is trying to convince the investors that it will do everything possible to avoid a taper-tantrum. The “taper tantrum” was a period in 2013 during which period yields skyrocketed in the short four months as government bonds were hammered. That likewise implies the Fed is worried about fixing things too rapidly.
If the Fed raises the rates, while other European central banks are still coping from the Greek deficit, there will be a global flood of money out of those countries to America. This would indirectly offset the effectiveness of the central bank strategies. So basically, the market is handcuffing the Fed. However, it is believed that a bear market is unlikely because of the fact that the U.S. market is healthy and the corporate earnings are growing. Another very important reason for Feds to delay the increase of rates might be the fear of bond markets spilling over into equities. The equity rates have been stable at zero since 2008 and make them a safe investment at this point in time.