FED Cuts money printing Tag Archive

After weeks of speculation of will they, by how much and when, causing a state of permanent market turmoil, the Federal Reserve have finally made their announcement on commencing winding in their financial stimulus program. Buoyed by great numbers on the job front and “improvement in economic activity, the FED have slashed a further $10bn a month off their “money printing”, although their stopped short of raising their own interest rates.

The knock on for the rest of us? Well a US government printing money has one main side effect, the weakening of the green back against other world currencies due to a dilution of supply. This not only makes the US more competitive on the world trade market but increases the amount of money available for investment outside the US. The dearth of cheap, newly printed money, means that the rest of the world can enjoy relatively low interest rates as the access to funds is plentiful. However as soon as the FED hinted at this late last year that the stimulus was short lived, with the arrival of new chair Janet Yellen, money started to flee riskier investments around the world back to the US. This mainly hurt emerging markets such as India, which has suffered badly due to this and other issues of its own making.

The first out of the blocks today were the central banks of South Africa and Turkey who both raised their interest rates in response to try and shore up their currencies against the greenback. The Rand still experienced a 2% drop today and there was heavy selling of Turkish and Mexican currencies.

The British Pound also fell against the Dollar today but only by $.003 as investors continue to show support for Carneys stewardship.