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US Fed mulls global market volatility
January 26, 2016, 6:33 am

Some analysts believe the Fed may have acted prematurely when it raised interest rates last month [Xinhua]

Some analysts believe the Fed may have acted prematurely when it raised interest rates last month [Xinhua]


There is a fear that the abysmal performance of global stock markets since the beginning of the year, coupled with continuing oil price volatility, may in hindsight indicate that the US Federal Reserve may have acted prematurely when it announced an 0.25 per cent interest rate hike last December.

The Fed’s Open Market Committee, which steers fiscal policy, meets today and tomorrow and is likely to probe why there has been so much tumult in international markets.

Ironically, the Fed – which came under significant pressure in the third quarter of 2015 to increase interest rates – may now be pushed by market forces to do just the opposite.

In its expected statement on Wednesday, the FOMC may likely push back its previously announced policy to increase interest rates another three or four timed in 2016.

Although the Fed’s delay in Q3 and Q4 of last year was partially blamed on China’s market corrections and devalued currency, this time around it is oil – and oversupplied energy markets – that are proving the thorn in the global economic health.

For example, indices from South Korea to Australia to Germany to London and the New York Stock Exchange all rallied last week on a 13 per cent rise in oil prices.

Even Chinese markets registered a significant jump last week, despite some consternation among analysts that the termination of Iran sanctions means Tehran would inject some one million additional barrels into already over-saturated markets.

True, but it was Iraq that delivered the death knell on Monday when it announced it had pumped record amounts of oil in January and would soon increase its market supply.

This sent oil prices into a tailspin as US benchmark West Texas crude reversed last week’s gains and dropped to $30.34.

By the time Asian markets opened on Tuesday, it had slipped doen to $29.58.

Similarily, global benchmark Brent Crude closed at $30.50 at the end of London trading entry; it, too, slipped below the $30 mark.

Last week’s two-day rally has been effectively erased.

On Tuesday, Japan’s Nikkei was down 2.35 per cent to 16,708, while South Korea’s Kospi slid back 1.15 per cent.

China’s benchmark Shanghai Composite index, which had started to strengthen last week, fell by 3.92 per cent.

European shares which open later today are expected to follow suit.

The BRICS Post with inputs from Agencies