Oil, dollar, ruble: how they are affected by the increase in the Fed base rate. What does rising interest rates mean for ordinary people? Consequences of the Fed rate increase

On Wednesday, September 26, the US Federal Reserve raised its base rate by 0.25%, to a level of 2-2.25% per annum. This decision was made by the Federal Reserve's Open Market Committee following a two-day meeting in Washington. Previously, the American regulator raised the rate in June to 1.75-2%, and during a meeting in early August it maintained the status quo.

According to experts interviewed by RT, the Federal Reserve’s actions were expected. In their forecasts, analysts excluded the possibility of the rate remaining at the same level and highly assessed the likelihood of it reaching the range of 2-2.25% per annum. Moreover, according to data from the Chicago Mercantile Exchange CME Group, immediately before the meeting of the US Central Bank, 95% of respondents expected a rate increase of 0.25%, and only 5% of respondents - by 0.5% (to 2.25-2.5%). per annum).

The Fed's decision was supported by economic statistics from the United States. As follows from the materials of the US Department of Labor, in August core inflation in the country (excluding prices for energy and food) accelerated to 2.2%, but still remained close to the Fed target of 2%.

Let us recall that the global financial crisis forced the Federal Reserve to soften monetary policy and lower its interest rate. Thus, on December 16, 2008, a record low range was set - from 0 to 0.25% per annum. This measure was taken to stimulate economic growth during the recession - loans became cheaper, and, consequently, the level of consumption and investment began to grow.

The American central bank took a course towards increasing interest rates only in December 2015.

“During the 2008 crisis, the United States was the first to introduce a quantitative easing program, beginning to supply free liquidity to financial markets. In the current situation, in order to prevent its economy from overheating and to avoid inflating another “bubble” on stock exchanges, the Fed is systematically and carefully following the path of increasing the interest rate,” explained Finam Group analyst Sergei Drozdov in a conversation with RT.

In its monetary decisions, the Federal Reserve primarily relies on the inflation rate in the country. After a protracted easing policy, the rate hike is intended to curb the acceleration of consumer prices. Andrey Bezhin, director of consulting and brokerage services at QBF, spoke about this in an interview with RT.

“The Fed needs to keep the rate at the inflation level (this is a neutral level) or slightly higher to prevent prices from rising. A lot of money has been printed in the system since 2008, and economists naturally fear that this situation will sooner or later provoke hyperinflation,” Bezhin noted.

As the expert emphasizes, the Fed itself so far notes the absence of serious inflation risks. However, concerns about accelerating prices remain. First of all, they are related to what is observed in the world today, as well as Donald Trump’s tax reform. Although most experts today predict only a short-term impact of these factors on inflation in the United States, some economists believe that the consequences could be long-term, Bezhin added.

Forex Club Group analyst Mikhail Rytik emphasized that the American economy today is suffering from trade, so the country needs new investment resources. Tightening monetary policy, in turn, makes it possible to attract additional capital. At the same time, this situation leads to an outflow of funds from emerging markets.

“When rates are raised in the short term, the currencies of developing countries traditionally come under pressure, as investors abandon investments in them in favor of more reliable US government bonds and deposits in American banks (they also raise rates following the Fed),” the expert emphasized.

Without unnecessary movements

In a conversation with RT, Andrei Bezhin recalled that in its latest forecasts, the Fed promised to carry out four rate increases in 2018. The first two were made in March and June, so analysts expected to see the rate increase twice more - in September and December. Against this background, the markets had already been prepared for a long time, and the Federal Reserve’s decision did not come as a surprise to them. That is why experts interviewed by RT do not expect a strong reaction from financial platforms and world currencies to the results of the Fed meeting.

“The dollar is likely to strengthen moderately - expectations of an increase are already largely included in current prices. The US stock market may react with a slight correction, and the dynamics of emerging markets will likely be neutral - the currencies of these countries may continue to strengthen under the influence of internal factors,” added Anton Pokatovich, chief analyst at BCS Premier.

At the same time, experts emphasize that any other action by the American regulator regarding the base rate could provoke serious concern among investors. For example, according to Pokatovich, a sudden increase of 0.5% instead of 0.25% would lead to panic among investors and increase the fears of players about the stability of American markets.

“The rate would hardly have been increased by 0.5%, as this would have led to a sharp rise in the dollar exchange rate. Such a situation would have a negative impact on the state of the American economy, which does not benefit from a too strong dollar,” added Mikhail Rytik.

At the same time, in the long term, the national currency of the United States can still continue to gradually strengthen. According to Sergei Drozdov, as long as the Fed moves away from a soft monetary policy, the dollar will remain more attractive relative to other world currencies.

“As for the reaction of the Russian currency, in my opinion, an increase in the interest rate by the American regulator is unlikely to have a serious impact on the ruble, since in the current situation of the national currency, despite high oil prices, it largely depends on the sanctions agenda, within the framework of which there remain risks of the introduction of further restrictions by the United States regarding Russian government debt,” the analyst explained.

In general, according to experts surveyed by RT, following the Fed, a number of countries (especially developing ones) will also continue to raise their own interest rates.

The next meeting of the US Federal Reserve will take place on November 7-8. As follows from CME Group data, today most market participants expect a rate increase to 2.25-2.5% in December.

The US Federal Reserve rate is the most important indicator of the global economy. A lot depends on it, because the United States is the economic leader on the planet, whether we like it or not. What is the Federal Reserve System? Why does the entire world economy depend on it? Let's try to figure it out further.

What is the Fed

The Federal Reserve System is the central bank of the United States. The establishment of the organization dates back to 1913. When it was created, Congress approved the key tasks:

1. Stable prices.
2. Moderate interest rate for a long period.
3. Ensuring maximum employment of the population.

In other words, this is a private corporation, which, due to the political and economic development of not only the United States, but also the world, began to play a key role in the economy of the planet. What is the Fed rate? More on this later.

Discount rate

The Fed discount rate is the most important tool of monetary policy. It represents the interbank lending rate, as well as lending and deposit rates for legal entities and individuals. In other words, it is the rate at which the Fed lends money to other organizations, including the US Government. It is this understanding that is key, since a change in the Fed rate in one direction or another affects the entire market. We will talk about how this happens using an example a little later.

The discount rate is not the refinancing rate

It is a mistake to think that the discount rate is the refinancing rate. These concepts are completely different. They differ in time. The Federal Reserve discount rate is the percentage at which a bank gives loans from its financial reserve to credit and business organizations for short periods.

Let's imagine, for example, that a large client appeared in one commercial bank. He places huge funds in the amount of a billion dollars on deposit at 10% per annum. Naturally, the bank invests them in investment instruments in order to make a profit. One fine day the client decides to withdraw the entire amount. The bank, naturally, does not have this money. He requests this amount from other banks at a percentage, which is called the discount rate.

The refinancing rate is the percentage for the annual use of money from the Central Bank (in the USA this is the Federal Reserve).

Will America Collapse Soon?

Since the Fed is the only organization that prints the global currency that serves as the basis for backing others, the Fed rate directly affects the price of credit money around the world. To be more precise, it sets a minimum price per dollar. Hence the impact on the entire economy.

And to those who in all the media talk about the huge financial debt of the United States, about the imminent default, the collapse of the dollar, let us say that it costs nothing to change the US key rate, accelerate inflation, and not a trace will remain of America’s national debt. But as long as there is stability in the States themselves, as long as the government is able to easily service its debt, such measures will not be taken.

Who sets the rate and how?

The US Federal Reserve rate is not set by Congress or the Senate; it does not depend directly on macroeconomic indicators. It is approved and amended by the Federal Open Market Committee. It consists of 12 representatives: 7 from the Federal Reserve and 5 from regional reserve banks. That is, 19 people decide in which direction the entire world economy will move.

The rate is determined at a scheduled meeting. As a rule, eight of them are held during the year in order to maintain the stability of the global financial system. This is an optional condition. Representatives may hold additional meetings to change rates during crisis situations. These are professionals in their field. They understand the state of the American economy better than others.

Stability is the main advantage of the United States

No matter how much they shout that the United States is evil, that they are the only ones who can print money, that everyone was deceived at the Bretton Woods conference in 1944, that the gold backing of the dollar was abolished, etc. - the dollar will retain its influence in the world for a long time. world. The reason is not the treachery of the Americans, their military might and use of force, but stability over the decades, both politically and economically.

The American establishment has been behaving according to the same unspoken rules for centuries. And no matter what US presidential candidates shout during the elections, when they get into the Oval Office of the White House, they forget all their election promises and behave according to generally accepted rules and norms. Stability in everything within the country is the main credo of American development. That is why the dollar will remain the world currency for a long time.

Fed rate by year

Since the rate increase in 2006, over the subsequent years it has been systematically decreasing until in December 2008 it reached its minimum - 0-0.25%. This continued until December 2015. First it was raised to 0.5%, and then in December 2016 by another 0.25%. Now it reaches 0.5-0.75%.

Is the rate increase a blow to Russia?

It’s a paradox, but for decades the United States kept the rate at zero, and raised it twice in one year. What does this mean? Economists are confident that this is a continuation of US pressure on Russia. The Democrats lost the elections, D. Trump won, as everyone thinks, a supporter of Russia and a friend of Putin. The outgoing Obama administration seemed to have done everything to hit our country as hard as possible with the closing door. And if the expulsion of Russian diplomats, although unpleasant, is not a fatal blow to Russia, then the increase in the rate seriously affects our economy, which, to put it mildly, has not been doing well in the last two years.

How does the Fed rate affect Russia?

The Fed rate hike has a big impact on our country. The fact is that Russia, one might say, is sitting on the “oil needle.” Prices for “black gold” are the main source of replenishment of our budget. The higher it is, the better for us. For the United States, as the main importer of hydrocarbons, on the contrary, the lower the price, the better.

An increase in interest rates leads to a strengthening of the dollar and a weakening of a barrel of oil, since all world contracts for it are based on the American currency.

Back in November, after Trump’s victory, our economists were rubbing their palms, thinking that 2017 would be more favorable for our country than 2016. But the United States gave us a New Year’s “gift” by increasing the rate. The price of oil immediately fell to $53.89 per barrel. Following this, the ruble exchange rate fell by 2.3%.

Fed Chair Janet Yellen said that this is not the limit. The Federal Reserve will be even tougher. In the future, she plans to further increase the rate.

No matter how negatively this may affect us, for the United States itself, an increase in the future is only beneficial for the following reasons.

1. With Trump coming to power, business activity within the country will increase. This will require additional money.
2. The growth of unemployment will decrease. Consequently, the increase will reduce the negative consequences in the social sphere.
3. Additional oil will be needed as the country embarks on industrial development. The USA is already the main importer of oil. Increasing the share of the real economy will further increase consumption. Therefore, they do not need expensive oil.

For our country, such news is not the most pleasant.

However, a strong increase could lead to other problems for the American economy. Some sectors will be in crisis: agriculture, construction. Therefore, we are unlikely to see a strong increase.

How does the rate affect domestic consumption?

Loan interest is a double-edged sword. Increases and decreases have opposite effects on various areas.

A high rate encourages people to buy. Let's imagine that we have a currency that will depreciate by exactly half in a month. Naturally, we will not put off shopping until tomorrow, and will run to buy refrigerators, televisions, and laptops. This already happened in 2014 in our country. Of course, manufacturers of small goods, household appliances, and electronics will only benefit.

However, there are many industries for which rate increases are a negative phenomenon. Take agriculture, for example. An increase in interest rate leads to an increase in interest on the loan. This is understandable: no one will give money to themselves at a loss. Consequently, farmers will refuse to purchase expensive equipment in the long term, because it is unprofitable. Sellers of luxury, expensive real estate, and cars will also be in the red. People willingly take all these things on credit, because they know that the interest on them does not increase. This is not a Russian mortgage at 20% per annum. American is about 1-2%. The United States itself understands all this, so we shouldn’t expect any major shocks.

This will drop the "wooden" to 70 per dollar

The US Federal Reserve decided to raise the base interest rate by 0.25 percentage points. Now interest in the dollar as an investment instrument will increase and investors will begin to use it more actively, transferring funds from other sectors. For oil, this is another reason for the price to fall - if the Fed continues the same course regarding the rate, then the barrel risks falling to $45. Which, in turn, will negatively affect the Russian currency, which in the medium term will fall in price to 67-70 rubles per dollar.

A week before the Fed meeting, almost all experts unanimously said that the agency’s board of directors would make just such a decision. Moreover, the head of the American regulator, Janet Yellen, had previously announced a similar decision, citing the positive dynamics of the main US macroeconomic indicators.

According to the President of the Moscow International Monetary Association, Alexei Mamontov, the consequence of raising the Fed rate will be an increase in investments in American assets, which will hit the financial situation of most developing countries.

First of all, oil-producing states, whose economies are heavily dependent on income from the export of raw materials, will suffer. Market players are reorienting their investments from the mining sector in favor of dollars. Stock speculators will add fuel to the fire by concluding short-term contracts for the purchase and sale of hydrocarbons in the hope of winning back the last positions gained by oil. “Prices for “black gold” will inevitably slide down and in the near future will find themselves below the psychological mark of $50 per barrel,” Alexey Mamontov is sure.

This is not the last factor that can drop oil prices. According to Ruslan Grinberg, scientific director of the Institute of Economics of the Russian Academy of Sciences, we must not forget that Janet Yellen’s department is making its decision in conditions where the oil market is already in a very unfavorable situation. At the moment, there are all the prerequisites that the solidarity of the OPEC countries regarding the position on reducing production, hard-won at the end of last year, is beginning to collapse. The most influential member of the cartel, Saudi Arabia, is no longer sure that it chose the right direction then. American companies skillfully took advantage of the decline in production of most oil market participants and revived their shale projects. Riyadh has already made it clear that at the May OPEC meeting, disagreements that have accumulated within the cartel may surface. This will serve as an additional incentive to break the memorandum signed by the countries.

Following oil, the value of the currencies of countries that are in one way or another tied to the extraction of mineral resources will also decline. Including Russia. The ruble, as most experts believe, is now excessively overvalued. Unlike oil, whose quotes have decreased by an average of 8-10% since the beginning of March, the value of the Russian currency has lost only 2% in value over the same period. “In the coming trading sessions that will follow the Fed’s decision, the dollar will add several percentage points and reach the level of 62 rubles,” believes Alexey Mamontov.

And this will only be a short-term effect. In the future, the position of the ruble may shake even more. According to FINAM Group analyst Bogdan Zvarich, the main attention of exchange players will be focused on the comments of the Federal Reserve that accompany the decision on the rate. “In them, investors will try to find hints about how soon the Fed will be ready to continue the rate hike cycle or will take a pause to assess the economic changes caused by the March tightening of monetary policy. In total, this year Janet Yellen’s department plans to make 3-4 similar decisions to raise rates. If investors decide that a further rate increase is inevitable in the near future, this could lead to an additional rise in the dollar and a new fall in oil prices. The ruble will then finally find itself between two fires, and the possibility of its strengthening will be in big question,” the expert believes.

According to Alexey Mamontov, the Fed's continuation of the policy of increasing the interest rate, coupled with a decrease in commodity prices, will bring the dollar to 65-67 rubles by the end of this year. If the negative scenario is realized, it is possible that the American currency will come close to the 70 ruble mark. We can only hope that this will to some extent benefit the Russian economy as a whole, since revenues from hydrocarbon exports may increase in ruble terms. However, such a favorable outcome will depend on the demand for energy resources this year, the growth of which experts are not yet confident.

UPDATE: Further events, however, unfolded contrary to many predictions - .

Illustration copyright Gennady Safonov/TASS

The US Federal Open Market Committee on Wednesday raised its benchmark rate by 0.25 percentage points to a range of 1.25-1.5%. The American central bank is thus gradually tightening its monetary policy.

This is the latest rate hike under current Fed Chair Janet Yellen, followed by Jerome Powell early next year.

Experts expect that he will continue to tighten monetary policy: during the 2008-2009 crisis, the American central bank cut rates to almost zero, and also carried out large-scale asset purchases using newly printed money (these operations were called “quantitative easing”, or QE).

Just a few years ago, the Fed’s policy largely determined the state of global financial markets: flows of money from the American central bank flowed into developing countries, leading to the growth of their markets and strengthening currencies, and also contributed to rising oil prices after the 2008-2009 crisis. The first steps to tighten monetary policy in 2015 led to a fall in markets.

Now the influence of Fed policy has noticeably decreased. The BBC Russian service looked into how the Fed's rate hike will affect the ruble, the Russian market and oil prices in the long and short term.

Why won't markets fall after the Fed's decision?

"Markets have already priced in the Fed's rate hike," Renaissance Capital economist Charles Robertson told the BBC.

The same is stated in the report of the investment division of Sberbank (Sberbank CIB): “the increase in rates has already been fully appreciated by the markets and in itself will not lead to any market reaction.” According to the bank's analysts, the market's reaction will depend on the Fed's forecasts for 2018 - the regulator usually gives a signal about how rates will rise next year.

The market now assumes that the Fed will raise rates 2-3 times next year, Robertson explains. Emerging markets may react if the Fed gives a signal that next year they will raise rates by 3-4 times, the economist explains.

The change of the head of the Fed limits the significance of any assessments, Anton Tabakh, chief economist of the Expert RA agency, disagrees. After a series of new appointments, the dynamics of rate increases may change, he explains. At the beginning of next year, there will be a number of personnel changes at the Fed: not only the head of the Central Bank will change, but also a number of high-ranking officials of the American central bank.

Why does the Fed's policy have less and less impact on emerging markets and Russia?

Fed policy, according to Tabach, has less impact on emerging markets than before, and for other reasons: the investor base in emerging markets has become broader.

This year, the Fed has raised rates three times: at the beginning of the year, the rate was only 0.5-0.75%. Markets in developing countries are growing much faster than those in developed countries. Thus, the MSCI index for developing countries grew by almost 27.7% in 2017, while the British FTSE 100 index added only 7.7%, and the American S&P 500 - 17.5%.

Economists in various reports explain the growth of emerging markets by the acceleration of their economies, for example, the growth of the Russian economy accelerated, and in the middle of the year, many experts, although only slightly.

Tabakh also names another reason: Fed policy changes have become more predictable. They are announced in advance, and investors can “build them into the price,” the economist explains.

The Fed sets rates for the US economy, but the regulator is also concerned about how its actions will affect confidence in global markets, Sberbank CIB chief strategist Tom Levinson explained to the BBC. "US rates are rising, but the gradual rise in rates is supporting emerging markets," the economist explained. Levinson does not see that rising rates can somehow affect the ruble exchange rate.

"The Fed's policy remains soft. This softness means that a lot of money is distributed around the world, including Russia," Robertson adds. According to him, Fed rates, even after the increase, are still significantly below the combined level of economic growth and inflation.

Will rising rates in the US affect the ruble and oil?

In recent months, the ruble exchange rate has actually become untied from oil prices, experts and officials of the Russian Ministry of Economic Development say. One of the reasons for this is carry trade operations - when investors make money on the difference in interest rates in different countries. They borrow currency from a country with low interest rates, like the United States, and buy currency from a country with high interest rates, such as Russia. And then they invest the money in bonds, which brings additional income.

“Carry trade will inevitably decline on both sides - from rising rates in the United States and from their reduction in Russia,” explains Anton Tabakh.

“Most likely, we will not see a strengthening of the ruble next year; most likely, there will be a weakening,” he believes.

Both Tabakh and Levinson noted that the oil market is almost now independent of the Fed's policy. “Oil prices are now determined by supply and demand factors in the energy market,” explains Levinson from Sberbank. This essentially means that the Fed's policies will not affect them.

This year another, fourth, increase is planned

Federal Reserve Building in Washington DC

Moscow. September 26. website - The Federal Reserve System (FRS), following a meeting on September 25-26, decided to increase the interest rate on federal funds rate by 25 basis points - to 2-2.25% per annum. This is stated in the communiqué of the Federal Open Market Committee (FOMC).

The FOMC decision coincided with the forecasts of the vast majority of economists and market participants.

Median dot plot forecasts from the September meeting indicated that 12 of the 16 FOMC members expect a total of four rate hikes this year. Forecasts for 2019 continue to call for three rate hikes.

The Federal Reserve raised rates for the third time in 2018, having previously raised rates in March and June.

The FOMC refused to designate monetary policy as “stimulating” in the communiqué following the meeting, which, according to experts, indicates that the rate level is approaching a neutral level.

"Given past and expected labor market conditions and inflation, the committee decided to increase the target range for the interest rate on federal lending funds to 2% to 2.5%," the Fed said in a statement.

The communiqué following the previous meeting noted that “the course of monetary policy remains stimulating.”

“Information received since the August FOMC meeting indicates continued strengthening of the labor market and strong growth in economic activity,” the communiqué said.

“Employment growth has been strong on average in recent months, and unemployment has remained low,” the Fed notes. “Consumer spending and business fixed investment grew at a strong pace,” the document notes.

“In annual terms, both the overall inflation rate and inflation excluding food and energy prices remain close to 2%,” the communiqué said.

“Indicators of long-term inflation expectations have changed little overall,” Fed officials say.

"The FOMC's responsibility is to promote maximum employment and price stability. The Committee expects that further gradual increases in the base rate target will be consistent with sustained growth in economic activity, a continued strong labor market, and inflation approaching the 2% target over the medium term," it notes. in the statement.

Risks to the economic outlook appear roughly balanced, FOMC members say.

“In determining the timing and size of future adjustments to the target Federal lending rate range, the committee will evaluate both actual and expected economic conditions relative to the targets of maximum employment and 2% inflation. This assessment will take into account a wide range of information. , including indicators of labor market conditions, indicators of inflation pressure and inflation expectations, as well as data on changes in financial and international conditions,” the document notes.