The head of the Federal Reserve, Janet Yellen, confirmed in his next speech of the Fed’s intention to keep pace with the progressive increase of the rate increase. According to it, a period too long is associated with the risk of overheating on the labour market and, therefore, the FOMC should not be too slow, and wait until the return of inflation to the 2% target.
During this time, Inflation is on a path that should not rush in its course. TheCore inflation rate has declined for 3 consecutive months, and currently remains below the long term average. Fed’s concern about the weakness of price increases is understandable that the consumer price index (PCE), excluding food and energy is also declining. By insisting on a rate increase in the current conditions, the means of agreement with a certain degree of risk.
However, Yellen believes that the low inflation is a temporary phenomenon. The reason of this confidence has been expressed many times before. Based on the assumption that the stability of the decrease in unemployment will be associated with an increase in the average wage and the growth of real incomes of the population, the Fed has put a lot of hopes on the growth of the labour market which, naturally, will contribute to the correction of the price to the consumer.
The market positively accepted the speech of the head of the Federal Reserve, while the dollar strengthened a bit through the whole spectrum of the market. At the end of the day, the futures market had a 76% chance of a rate hike in December, which corresponds to a high confidence. It is a bullish trend in the dollar, which will contribute to its growth.
Today, more than three members of the FOMC namely, Bullard, Brainard, and Rosengren, will present their vision on the situation of interest rates and its development. Obviously, the Fed wants to manage the expectations of the market, as closely as possible. Therefore, the market reaction will probably be positive, which will support the dollar. Unless, of course, it is leveled by frankly mediocre macroeconomic data. A report on durable goods orders for the month of August will be published today, after the fall of 6.8% in July. The market expects an increase of 1% and any deviation in the forecast will have a significant effect on the dollar.
The main factor that the market will be concentrated in the next 24 hours is probably in the presentation of a tax reform plan in Congress. This has been a long-awaited event that the main directions of the reform were presented in April last. The expectations of the presentation of the plan are confidently positive.
It is expected to announce several important changes to both the investors who appreciate. It is a matter of tax holiday in case of repatriation of income earned abroad, a tax deduction for the capital expenditure and, of course, a reduction in the corporate tax rate. Currently, the main plot is centered on the volume of decline, while the decline rate of 15% was previously announced and there is a tendency for the market to change it in the 20% as the budget revenues fall much more than forecast. In particular, the budget revenues in August amounted to 97.8% similar to the same month last year. Reductions were observed in nine of the past 18 months and revenues amount to only 88% of the planned budget, which is significantly lower than expected. However, the lack of funds is compensated by the growth of the debt, but this process requires a quick response.
If the expectations are met, the market will be a new impetus to the growth. In particular, the shares of companies in grande cache volumes accumulated abroad will increase and there will also be an increased impetus to the growth of a company with a high level of capital-intensive fixed assets that will eventually stimulate growth in the stock market. The presentation of the plan to cause the demand for the dollar, which will eventually become the main driver of the trend reversal to the north.
Protection of the asset can be most affected. At the end of the day, gold may move lower than the support area of 1288 while the euro will continue its correction towards the support level of 1.16. The yen will test the resistance at 112.80 for the force.