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The Fed and Interest Rates

Credit Drew Angerer for The New York Times

Last week Fed The Federal Reserve The Federal Reserve is the Central Bank of the United States of America and sets the monetary policy When used by traders and investors monetary policy When used by traders and investors monetary policy When used by traders and investors monetary policy usually refers to Central Bank policy concerning ... More usually refers to Central Bank policy concerning ... More usually refers to Central Bank policy concerning ... More ... More is the Central Bank of the United States of America and sets the monetary policy... More Chairwoman Janet Yellen surprised many by expressing quite a bit of caution regarding the future of short-term interest rate hikes. The Fed The Federal Reserve is the Central Bank of the United States of America and sets the monetary policy... More for many months last year had been warning that the key interest rate in the U.S. would be increased incrementally and suggested that its goal was to bring the rate back to a potential 1.00% – that seemingly has ended short-term.

After months of holding off on raising the rate and then performing what was largely interpreted as a ‘back to the wall’ increase  late in 2015, the Fed has been put into a position that will make it difficult for them to raise rates substantially during 2016. The U.S. economy is not stellar and U.S. elections loom.

The Non-Farm Employment Change numbers from the States did show another gain late last week, meaning more Americans were finding jobs, but questions remain about the type of work employees are finding. Other key data such as GDP and Manufacturing PMI readings continue to show that the American economy is not achieving strong growth.

The impact of the Fed essentially being stuck means that the USD The USD The USD is the official currency of the United States of America. It is the largest reserve currency... More is the official currency of the United States of America. It is the largest reserve currency... More may have reached what will be perceived as its strongest values. The Greenback The USD is the official currency of the United States of America. It is the largest reserve currency... More will certainly trade in trends against the other major currencies, but it is unlikely that the Fed will be the impetus which causes the USD to get stronger.

However, there are plenty of questions about the global economy and the fact that the Bank of Japan and the European Central Bank The European Central Bank The European Central Bank The European Central Bank, ECB The European Central Bank, ECB, is the Central Bank of the European Union and sets the monetary poli... More , is the Central Bank of the European Union and sets the monetary poli... More , ECB The European Central Bank, ECB, is the Central Bank of the European Union and sets the monetary poli... More , is the Central Bank of the European Union and sets the monetary poli... More , ECB, is the Central Bank of the European Union and sets the monetary poli... More continue to practice what could be called ‘negative interest rate’ mandates could spur USD buying. The BoJ has literally taken its interest rate into negative territory, while the ECB has been gradually moving towards the possibility the past few months.

What does it mean? The USD will continue to find buyers even though it is certainly trading from a position of strength – when negative economic data comes from Asia and Europe. Trends are certainly opportunistic at this juncture and short-term traders can find advantages with good risk management.