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article imageU.S. interest rate movement is following the market

By Tim Sandle     Dec 20, 2018 in Business
The Federal Reserve has raised interest rates for the fourth time this year. However, this is in response to market conditions, according to Peter Kendall and Steven Hochberg from Elliott Wave International.
The Fed has announced the fourth interest rate hike of the year, with chair, Jerome Powell indicating that while the pace of increases may slow, more rises are probably come in 2019. In response to the U.S. interest rate rise, share values fell sharply in both the U.S. and Asia, according to Sky News.
What are the factors behind this type of interest rate rise?
"Most economists and financial analysts believe that central banks set interest rates", state Peter Kendall and Steven Hochberg, in commentary provided to Digital Journal. They continue: "For more than two decades, Elliott Wave International has tracked the relationship between interest rates set by the marketplace and interest rates set by the U.S. Federal Reserve and found that it’s actually the other way around—the market leads, and the Fed follows."
Peter Kendall and Steven Hochberg co-edit Elliott Wave International’s Elliott Wave Financial Forecast, which provides market behavior and cultural trends relating to financial matters.
Despite political pressure leading up to the Fed decision, Kendall and Hochberg state: "Confusion reigned as the U.S. president as well as a former Fed board member publicly urged the U.S. central bank not to raise rates and many wondered if the Fed would 'rescue' investors with a surprise decision to leave them unchanged. The Fed, however, did what it almost always does: it brought its rate in line with market rates." A decision which supports their hypothesis.
This is also a long-running theme: "Over the years, Fed leaders have indicated that they’re in the dark. On September 17, 2007, a CNBC interviewer asked former chairman Alan Greenspan, 'Did you keep interest rates too low for too long in 2002-2003?' Greenspan instantly responded, 'The market did.'"
Furthermore, the economists write: "In a November speech this year, current chairman Jerome H. Powell likened the Fed’s situation to walking through a living room when the lights suddenly go out. He said, 'What do you do? You slow down and you maybe go a little bit less quickly, and you feel your way more. So under uncertainty of this kind, you be careful.'"
They also note that: "The Fed has recently racked up $66.5 billion in paper losses in its bond portfolio, far exceeding its $39.1 billion in capital. Would you trust an institution that lost so much money in the bond market that it sank to a net worth of negative $27.4 billion to tell you where interest rates were headed? The Fed continually follows the market because it lacks any other useful guide." In other words, markets dominate so-termed “interest rate policy.”
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