money

I have always asked myself this question, what will happen to the world markets if the US starts to increase their interest rates which is now at ground zero and slightly above the ground.

Bernanke did mention that there will be a time when the US will start to increase their interest rates again.

BEN BERNANKE: We have had a lot of stimulus, which we’re trying to use to make the economy grow. Once the economy starts to grow and begins to move ahead, then it will be very important for the Fed to unwind, raise interest rates, bring that credit back, bring the money back, so that we don’t have an inflation problem down the road.

So, they are saying that the US interest rates are kept low to boost the economy, to make it grow. So, when the economy starts to grow, inflation is suppose to be the next enemy of the US economy and in order to fight that economy, the US will start to increase the interest rates again. And when they do increase their interest rates again, what will happen to the other markets?

I think that it will affect gold price and halt its ascend to a certain extent. Also, the US Dollar will start to appreciate against the other currencies. However, how that fares will depend on other central banks and their interest rate policy.

But do you think that the US is going to increase interest rates any soon? Personally, I dont think so. The US economy has much to work at. The unemployment figures are not showing improvement and the US consumer is now tightening their belt and decreasing spending which wouldn’t be good overall to their economy as well as the Asian export led economies.

So, until there are signs of the economy strengthening to a fitter level, lets just keep Bernanke’s comments above in mind. We have to follow the Fed’s interest rate policy closely and keep tabs of whats happening so that we are aware of the backdrop of the fundamental environment which will affect all traders.

Selamat Jual Beli!
(Happy trading in Malay)

-Ardy-