Chris Marshall

Fed Credibility?

The FED is seen to having a differing view from the rest of the world central banks. Effectively they are exporting inflation to the rest of the world by weakening the dollar.

The sovereign wealth funds and central banks have intimated that if the FED reduces interest rates, or weakens the dollar again, that they will stop buying T Bills Etc.

The ECB will raise interest rates to 4.25% this week (unless the FED tries to bring undue pressure to bear), which will weaken the dollar and probably cause the oil price to reach $150 pb.

It would be in everybody's interest for the FED to raise their rates by 0.25% to match the ECB rise, whereby the oil price would remain at around $140 pb.

The Qtr point rise in interest rates will hurt industry, and especially financials, but in the long term it should prove to be more beneficial to the overall world economy, if all central banks act with the same strategy.

The Bank for International Settlements meeting in Switzerland this week, may be stormy, hopefully a new consensus will be forthcoming.