How does the Fed rate affect the dollar. US Federal Reserve: The weapon of expansion is the dollar

The US Federal Reserve System (FRS), which acts as the country's central bank, continues to raise the base interest rate. In 2017, the regulator did this three times; in 2018, market participants expect up to four increases. On June 13, the target range for the federal funds rate was set at 1.75-2%per annum. TASS explains what the Fed rate is, why it grows and how it affects our lives.

What is the base rate?

This is the interest rate that US banks use when lending their excess funds to others. commercial banks experiencing a shortage of reserves. Federal Committee for Operations on open market The Fed sets the so-called federal funds target rate, which is a value or a range of values ​​- the same 1.75-2% per annum. The weighted average of the rates is called the federal funds effective rate.

What does the rate hike mean?

Lower interest rates cause more high level consumption, as well as greater investment. And vice versa: the higher the rate, the more expensive loans and the less money in the economy. This means that the demand for them will increase, and therefore, the value of the dollar will also increase. Thus, the Fed's decision to raise the rate means a tightening of the US monetary policy: before, money was cheap, but now it will become more expensive.

The US Federal Reserve has the exclusive right to issue US dollars. The Fed rate is the rate to which all interbank lending, i.e. lending from one bank to another, is pegged. Following the American regulator, other banks are also forced to raise the rate (for example, the Monetary and Financial Administration of Hong Kong, the central banks of the Persian Gulf countries, and so on).

Why did you need to raise the rate?

The base rate of the Fed is one of the main instruments of US monetary policy, which allows, if necessary, to reduce the "overheating" of the economy or, on the contrary, stimulate its growth. As a rule, the Fed raises the rate so that the economy does not "overheat" and prices do not rise too quickly.

Today, there is no talk of any "overheating" of the US economy, but it really shows growth after the crisis. In 2017, Fed Chair Janet Yellen said that the US economy is already in a healthy state, so the main task of the regulator is to pursue a policy of raising the base interest rate. According to Yellen, the department intends to do this gradually in order to maintain adequate growth of the US economy and "prevent it from overheating."

What are the implications of the rate hike?

Since the US is the largest economy in the world, its main indicators and the Fed's adjustment measures have a strong impact on world exchanges and the currencies of other countries. Thus, when the rate is raised in the short term, the currencies of developing countries (as highly profitable, but more risky markets) may “suffer”, as investors refuse to invest in them in favor of more reliable US government bonds and deposits in American banks, which raise the rate after Fed.

Oil quotes are inversely related to the US currency: the more expensive the dollar, the cheaper oil. This is due to the fact that world oil contracts are denominated in US dollars. Thus, a Fed rate hike should result in a cheaper barrel. However, to a greater extent, oil prices are now determined by supply and demand factors in the energy market.

What to expect next?

In 2016, Janet Yellen promised that the regulator's policy would continue to be tough, and implemented three increases discount rate in 2017 instead of the two previously expected. Market participants are convinced that Yellen's policy will continue under her successor -. According to Goldman Sachs and JPMorgan, the rate will increase four times in 2018. In the next two years, it can grow quite significantly, up to 3%.

The dynamics of the Russian currency in the near future will be determined by the political situation and fluctuations in oil prices, and not by monetary policy, experts. But this does not mean that the actions of the Fed will not affect the ruble in any way. An increase in the rate reduces the attractiveness of investing in assets developing countries leading to depreciation of their currencies. The ruble carry trade (a strategy in which investors profit from the difference in interest rates in different countries) will become less profitable as the gap between rates in the US and Russia narrows. Considering that the Bank of Russia, in order to stimulate economic growth, has a monetary policy opposite to the Fed, a sharp increase in the rate of the American regulator may lead to a weakening of the ruble.

What does Donald Trump think about the bet?

During the presidential campaign, Trump has established himself as an opponent of the monetary policy pursued by the regulator. Moreover, in an interview with CNBC reporters, the billionaire accused Janet Yellen of allegedly deliberately keeping the discount rate low due to the wishes of President Barack Obama. In the same interview, he said that, as a businessman, he likes a low rate, but for the good of the people, it must be raised. After the election, Trump changed his position and not only stopped criticizing the Fed, but also thanked its head for the good work.

However, according to economists, this situation will last exactly as long as the Fed's monetary policy suits the president. IN Lately Trump again criticizes the regulator for the fact that the growth of the dollar puts the US at a disadvantage in a trade war with the EU and China. They, according to the head of the White House, manipulate the exchange rate of their currencies in order to lower it, which means they gain a competitive advantage.

Experts note that further decisions by the Fed will depend on whether the president will be able to fulfill his ambitious economic program. During the election campaign, Trump promised that he would launch a series of large-scale, remove restrictions on and increase budget spending to support economic growth. All this can drive up inflation and create dangerous financial bubbles, so the task of the Fed now is to balance the ideas of the president-elect with tighter monetary policy.

Artur Gromov

The rate hike by the US Federal Reserve was expected: this is the second tightening of monetary policy in three months. As stated earlier, the Fed will gradually phase out its policy of stimulating the economy through a policy of "zero" rates. But, the weakening of the dollar on forex does not fit with the theory - what went wrong?

The "wrong" response to the Fed's rate change

A change in the Fed rate affects the value of money in the US economy. Since the US economy is "tied" to the whole world, this indicator also affects Russia - for example, through the cost of oil. Some economists believe that if the exchange rate of the national currency is affected by a change base rate another country, this means the dependence of Russia's financial and monetary policy on external institutions.

When the US Fed raises the rate, the market Forex reacts unequivocally: borrowing becomes more expensive, and investing in bonds is more profitable. As a result, the dollar exchange rate is growing, and the ruble is weakening: it becomes easier for the Ministry of Finance to fulfill the budget, but the average consumer loses - due to the fact that most goods are imported from abroad, their cost increases.

The current increase in the Fed's rate does not fit into the economic logic: against the background of the growth of the rate, the dollar is only weakening, causing the strengthening of the Russian currency and an increase in the cost of oil.

Why did the Forex market react with a weak dollar to the Fed's rate hike?

It is difficult to give exact reasons. It is possible that the Fed rate increase was too predictable and the consequences of the increase were taken into account in advance in the main quotes. Few people were interested in the issue of the rate: in a few weeks, most economists understood that the Fed rate would be increased. I was interested in another question - a hint of how many times the rate will change. Nothing special happened: as promised, there will be three rate hikes in 2017, which means that monetary policy will remain predictable.

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The outlook for the dollar is influenced by Donald Trump's willingness to depreciate the national currency in order to support producers and the reduction in US volumes of purchased oil. Considering that the new US budget concept has increased spending on defense and internal security, and no major infrastructure projects (except for the construction of a wall on the border with Mexico) are indicated, this is fraught with rising inflation. The international market will react to this with a decrease in interest in the dollar.

There is a serious capital flight in the US government bond market: it is believed that this is primarily due to the slowdown in the Chinese economy, which needs to "close" the budget. But many tend to see other reasons for this: in the uncertainty of relations between the United States and China. However, from valuable papers The US is getting rid of not only China: Russia, Saudi Arabia and even Japan has also joined the process of selling US government bonds.

In addition to a direct increase in the federal funds rate, the reduction of the Fed's balance sheet is an additional tool aimed at tightening monetary conditions and raising, albeit moderately, the rates of the US money and debt markets, recalls Ilya Frolov, an analyst at Promsvyazbank. In this case, the dollar and assets in it become more attractive to investors, he says: for example, you can borrow in euros at a rate close to zero, transfer money into dollars and get more income due to the difference in the attraction rate and the investment rate. “Therefore, an increase in the attractiveness of dollar assets may gradually lead to an increase in the outflow from financial markets characterized by less stability and higher risks,” Frolov concludes, referring Russia to such markets. The Russian Central Bank is cutting rates, the analyst recalls, which is likely to cause a reverse flow of capital - from ruble assets to dollar assets, which may negatively affect the ruble against the dollar. Frolov expects that by the end of the year the dollar will cost 59-60 rubles, that is, it will rise in price against the Russian currency by 3.5-4%.

“Although the Fed plans to raise the rate in December and do it three more times in 2018 and cause us doubts, the mood towards emerging market currencies, including the ruble, will become at least less optimistic,” Sberbank CIB said in a review. . In the event of another rate hike this year, the dollar may strengthen in the near future, and the dynamics of emerging market currencies will become more cautious, Sberbank CIB analyst Tom Levinson believes (his words are quoted in an investment bank review). Therefore, in the fourth quarter of 2017, the dollar will cost about 60 rubles, he believes.

“Further strengthening of the dollar will also hold back the growth of commodity markets, which until recently compensated the ruble for all the geopolitical negative and could knock the ruble out of the current equilibrium level to 59 rubles,” believes Alexander Losev, CEO of Sputnik Capital Management. And if hydrocarbons and industrial metals also become cheaper, including due to today's downgrade of China's credit rating by S&P and the outflow of funds from there, by the end of 2017 the dollar will cost 60 rubles, he calculated.

“The results of this Fed meeting and the future plans of the Fed were predictable, so I think that the effect of a future rate increase and the start of a balance sheet reduction program has already been taken into account by the market,” said Oleg Kuzmin, chief economist at Renaissance Capital. According to him, the difference between the rate on ruble-denominated assets (including Russian sovereign bonds, which are extremely popular with foreigners) and dollar-denominated assets is still quite attractive for Russia. “Despite the fact that the Russian Central Bank is likely to continue to actively reduce key rate, we can hardly expect significant fluctuations of the ruble in the next year and a half, ”Kuzmin believes, according to forecasts of which the dollar will cost about 59.5 rubles by the end of the year, but due to cheaper oil.

The market has been waiting for information on the timing of the reduction of the Fed's balance sheet since the summer. In late August, Fed Chair Janet Yellen, speaking at a symposium in Jackson Hole, did not touch on the topic of a possible change in the country's monetary policy and did not name a start date for reducing the Fed's balance sheet. After that speech, the dollar continued to fall - since the beginning of the year, it has already fallen in price against the euro by more than 10%.

The issue of raising the rate this December has already been actually resolved - investor confidence in this decision by the Fed on Monday, according to CME Group, reached 100% . However, the size of the rate hike has never caused so much controversy among both Russian and Western economists. Let me remind you that Jerome Powell, focused on developing the economy, and not on ensuring financial stability (like Jeanette Yellen), is becoming the new head of the Fed, so a sharp change in the paradigm of the Fed's priorities is possible on the eve of his assumption of office. Rate changes may begin as early as December. The consensus forecast of Western brokerage houses is about 25 percentage points from the current rate of 1.25%, while Russian analysts tend to assume more decisive action - up to an increase of 0.5%, explaining this by the fact that the rate lagging behind the index inflation expectations, which currently stands at 2.8%, could lead to an uncontrolled rise in prices.

Given that the Fed's long-term key rate target is 2.75%, Russian analysts are certainly closer to the truth. However, now a sharp increase in the key rate may return increased volatility to the US stock market, which is experiencing historical highs, which, in turn, may turn into negative consequences for the medium-term growth of the country's economy. For example, HSBC experts are inclined to assume that such steps can provoke a change in the conservative approach on the part of investors to a more risky one, as it was in the 2000s, which means that the economy can reach the target indicators much faster than the Fed suggests, but the price of this growth may be the subsequent decline. In addition, based on the rhetoric of the Trump administration, the rollback of quantitative easing, which has left the United States with the highest external public debt on record and the most low rates on loans in history, is not desirable in the light of the tradedeals initiative proposed by the American president (concluding new trade agreements with international partners, some kind of insurance against a decrease in the growth of the country's economy). A weak dollar is important for the implementation of new trade agreements.

Currently, in anticipation of the Fed's decision, the dollar is growing against all world currencies (to ruble And Euro it strengthens relatively moderately), oil contracts are under pressure and getting cheaper, as cheaper and gold. At first glance, all signs point to an imminent significant decline in the ruble against the dollar - at least, Russian investors and funds investing in Russian assets have already begun to prepare for this. U.S. bond yields decline (to less than 2.8%), tech and energy stocks soar S&P 500 to a record 2659.99. Let me remind you that this year this index has updated its historical maximum for the 59th time.

However, the decline in oil prices is extremely episodic: on December 6, having fallen by 2.6% and 2.3% on the Chicago and New York exchanges, respectively (following the January oil futures, which were traded in the region of $62 per barrel), already on Friday, oil returned to growth again, on the one hand, due to the increased attention of international investors to energy assets (including Russian ones), on the other hand, thanks to the report Baker Hughes, showing a measurable decline in crude oil inventories in US oil storage facilities. The chances that after the announcement Fed decisions, oil will drop significantly, slightly - in currently it's in no one's interest. Gold continues its bearish trend, having already fallen to $1,240, but there are no sharp changes in its market value yet - the owners of gold contracts, apparently, do not expect a significant increase in the rate and are in no hurry to close their positions.

All this indicates that most likely the current fever, which we are seeing in the US market and in Europe, is more like a storm in a glass than preparation for a change in the Fed's monetary policy. This means that the ruble retains all chances to remain relatively stable against the dollar. As far as the euro is concerned, much depends on ECB meetings, which is scheduled immediately after the Fed board meeting. Most likely, the European Central Bank will leave everything unchanged.

On July 26, 2016, a two-day meeting of the Federal Reserve System (Fed) began in the United States, however, the Open Market Committee of the American financial regulator will announce its decision on interest rates on Wednesday, July 27, at 21:00 Moscow time. The decision of the Fed may have an impact on the dynamics of exchange rates and the activities of regulators in other countries.

About how interest rates work and why their changes excite the markets - in the TASS material.

What is the FRS

• The US Federal Reserve System, established in 1913, performs the functions Central Bank countries.
• Its main tasks are the implementation of monetary (monetary) policy by influencing the conditions of monetary circulation and the credit rate, control and regulation of banks, maintaining the stability of the financial system.
• To solve these problems, the Fed uses the so-called open market operations (purchase of government securities, mandatory reserve deposits by banks with the Fed and setting refinancing rates (base) and accounting).

What are the rates

• Discount rate, set by the regulator directly, determines the cost of credit for commercial banks, which is issued by the Fed.

• Wherein refinance rate (fed funds rate), which is key regulated through open market operations. That is we are talking about the interest on the loan that US banks use when lending their excess funds to other commercial banks that are experiencing a shortage of reserves. The rate is key because it affects the amount of credit for the end consumer: individuals and legal entities.
• The Fed cannot directly set this rate.
• The regulator sets the so-called target federal funds rate, which is a value or range of values. But banks are not obliged to issue funds to other credit institutions at this particular percentage.
• If the regulator notices that banks are using rates that differ from the target, it resorts to buying or selling government bonds so that the values ​​\u200b\u200bare returned to the specified range or to the specified value.
• The weighted average of bank rates is called effective the federal funds rate.

Why regulate rates, and what does it affect

• When the Fed wants to lower the key rate, it buys government bonds on the open market: this leads to an influx of funds into the market, makes credit "cheaper" and stimulates investment. That is, lowering the rate contributes to economic growth, creates jobs and, therefore, is used to prevent crises.
• However, excess Money can lead to inflation, and to avoid this, the Fed can raise the rate by selling government bonds and artificially creating a shortage of money in the market.
• It is worth noting that it is not easy to regulate the markets, balancing between economic growth and low inflation. Low interest rates can lead to "bubbles" in financial markets and are disadvantageous for many participants in the economic process. At the same time, provided high stakes there is a risk of a slowdown in economic growth, and they are especially inappropriate in a crisis.

Why the decisions of the American regulator are so awaited by world markets

• Since the US is the largest economy in the world, its main indicators and the Fed's adjustment measures have a strong impact on world exchanges and the currencies of other countries.
• Thus, when the rate is raised in the short term, the currencies of developing countries may "suffer", as investors refuse to invest in them in favor of more reliable US government bonds and deposits in US banks, which raise the rate after the Fed.
• The dollar is getting more expensive.

How does the Fed rate affect the Russian economy

• The increase in the Fed's discount rate puts pressure on the currencies of countries with emerging markets, including the Russian ruble.
• The expectation of a rate hike and, accordingly, a strengthening of the dollar did not allow the ruble to strengthen in May, despite the rise in oil prices.

Interesting facts about the American regulator

• The Fed brings together 12 regional banks (these banks are in major cities- Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco).
• However, despite the fact that the Fed is completely private company in terms of the ownership structure of capital, the state plays a significant role in its management, and in general it is independent federal agency the US government.
• Independence in work is ensured by the fact that the decisions made on monetary policy do not have to be approved by the President of the United States or any of the executive or legislative branches of government.
• The Fed does not receive funding from Congress. At the same time, the Fed is under his control.
• In 1982, a precedent case was considered in the Court of Appeal: a private individual demanded compensation from one of the Federal Reserve Banks for damages inflicted on him by the state. The Court issued the following verdict: "Federal Reserve Banks are not government entities, but independent corporations owned by private individuals and controlled locally. The Federal Reserve Banks were created to carry out a number of government tasks."

Fed rate dynamics

In the 1950s-1960s. effective rate US federal funds fluctuated in the range from 0.5% to 9%. In 1973, the oil crisis led to an increase in the rate of inflation in the country, because of which the target rate was sharply raised from 5.75% to 10.5-10.75%. After falling to a level of 4-7% in the mid-1970s. the rate set records due to a new burst of inflation in 1980-1981. (18-20%). During the 1980-1990s. the rate gradually decreased to a level of about 5%. In 2001-2003, after the accession to the post of US President George W. Bush, the rate was gradually lowered to the level of 1% (set on June 25, 2003) to fight the recession. The target remained unchanged for a year, then was raised again. In 2006, the new head of the Fed, Ben Bernanke, repeatedly raised the rate (up to 5.25% on June 29, 2006) to counteract the growth of the "bubble" in the real estate market. However, the beginning of the global financial crisis forced the regulator in 2007-2008. lower the rate. On December 16, 2008, a record low range was set - from 0 to 0.25%, while Ben Bernanke pursued a policy of quantitative easing (in total, the Fed bought up about $4.5 trillion in assets). Since then, the target rate has not changed for seven years, and the effective rate has ranged from 0.07% (December 2012, early 2014) to 0.2-0.22% (February 2009, spring 2010). .). In August 2008, the effective rate was 0.14%. In December 2015, the US unemployment rate was 5%, the lowest since February 2008, and GDP growth was projected at 2.8%. In this regard, on December 16, 2015, the Fed changed the rate for the first time since 2008, raising it to 0.25-0.5%. As of July 2016, the effective rate is 0.4%.