Fed won't let itself be looked at

Although Fed chairman Jerome Powell insists that it should not be a secret to anyone which course the central bank takes, he still manages not to let himself be looked at.

Powell has been chairman of the Federal Reserve (Fed) since early February. However, the way in which he avoided Monday 16 July in order to provide clear answers to the critical questions of the US Congress suggests that he would also do very well as a politician.

Traders hoping to get a better idea of ​​the central bank's future course were disappointed. Powell especially excelled at kicking open doors: a trade war is bad for economic growth and farmers struggle when crop prices fall sharply.

No secret
Only when there was talk of monetary policy, he couldn't get away with meaningless answers. After all, setting interest rate policy is the Fed's primary responsibility. Congress, however, did not pose any critical questions to him in this regard.

Powell did say that the race should not be a secret for anyone: "In view of the healthy labor market, inflation close to our target and a steadily growing economy, it is likely that interest rates will gradually rise further."

positive picture
In the absence of new insights, the comments about the favorable economic undertow attracted a lot of attention. Powell noted, among other things, that the positive picture for the US economy could continue in the coming years and that the outlook for the global economy is still favourable.

This despite major uncertainties in certain parts of the world. That was exactly what the financial world wanted to hear. Stock prices on Wall Street bounced back somewhat, while the US dollar gained some ground. Against the euro, the currency gained almost 1% within a few hours.

Widening interest rate gap
It must be strange if the American interest rate does not rise to 2,5% in the coming six months and reach 2019% in the summer of 3. That is a level that we in Europe can only dream of for the time being. This because Mario Draghi, the president of the European Central Bank, said 1 month ago that an interest rate hike is not yet on the agenda for the next 12 months.

The dollar has risen by more than 6% against the euro since mid-April. In view of the widening interest rate gap, it could just be that this rise will continue for the time being.

Lawrence Martins

Laurens Maartens is a currency expert at the Dutch Payment and Exchange Company (NBWM). Maartens analyzes current currency developments and also provides lectures and training in the field of currency management.

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