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December 2018
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Friday, 12 October 2018 13:00

Financial market volatility may soon influence Fed policy, Moody's

Financial market volatility may soon influence Fed policy, Moody's

Free-falling share prices might soon drive the 10-year Treasury yield under 3%. The market value of U.S. common equity was recently 7.4% under its record high of August 29, 2018. In the event the equity market sinks 10% under its current zenith, the containment of inflation expectations supplies the Fed with more than enough leeway to temporarily halt its ongoing normalization of monetary policy, Caspian Energy News (www.caspianenergy.net) reports with reference to Moody’s.

When monetary policy lacks precedent, flexibility is necessary. Never before has the Fed simultaneously firmed policy by both hiking fed funds and reducing its holdings of Treasury bonds and agency mortgage backed securities. For example, a deep enough drop by the market value of U.S. common stock may prompt the Fed to either downsize or halt the ongoing passive reduction of its Treasury bond holdings.

The equity market recognizes that it takes less of an increase in benchmark interest rates to materially damage business activity in a highly leveraged economy.

More details: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1145554

Person in charge of the newsline: Olga Nagiyeva 

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