Although the markets were technically not pricing in much chance of a rise in US interest last week (about 28 per cent by most measures), there was still a great deal of surprise and no small amount of confusion when the Federal Open Market Committee’s unchanged decision was announced on Thursday evening.
This was because the analyst community was split more or less 50-50 over the outcome, and in the past few days before the decision the momentum appeared to be with those looking for a hike, if only for the Fed to get the first interest rate rise behind it.
The Fed blinked at the opportunity to tighten monetary policy for the first time in nine years, even though many in the markets would have understood its reasons if it had only raised interest rates by 0.25 per cent or even less. As it is, the window of opportunity for it to act this year has now got smaller, leaving the Fed dangerously exposed and boxed in should events turn even more difficult through the final quarter, with few tools left that it could use to respond to any external shocks.
The crux of the Fed’s decision to stay put appears to come down to the new sentence that appeared in the statement, saying: “recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term”.
Despite the improvement of domestic fundamentals, the Fed is now more concerned about the slowing global economy – by which it means developments in China and other emerging markets – along with the downturn in commodity prices and perhaps the strength of the dollar. These were the issues that tipped the balance in favour of waiting for more information about the labour market and probably about prices.
However, the Fed chairwoman Janet Yellen was short on specifics about what might actually cause the Fed to tighten policy. Forecasts for Nairu (the non-accelerating inflation rate of unemployment) were lowered again, despite the unemployment rate having reached the level the Fed had previously anticipated was full employment (5.1 per cent) last month.
GDP growth estimates were raised for this year but lowered thereafter, and the dot-plot Fed funds rate estimates were lowered slightly, to imply only one interest rate rise by the end of the year and a lower long-term equilibrium level of 3.5 per cent (which is still too high by most estimates).
Furthermore, Ms Yellen’s commentary is forever changing and appearing increasingly random and sometimes contradictory. Whereas in July Ms Yellen had said that the US economy “cannot only tolerate but needs higher rates”, this time she even said there is rationale for a rate hike now, while offsetting this by saying the situation abroad had become “more uncertain of late”.
At the same time, however, she does not want to overplay the impact of overseas developments, and appeared at one point to downplay the impact of the strong dollar by emphasising the bigger importance of the consumer to the US economy. Although disinflation imported from abroad has moved the Fed further away from its inflation mandate, Ms Yellen stuck to her previous line that this was likely to be transitory.
Finally, the decision to raise interest rates will not depend on any single piece of data, and options were left well and truly open when it comes to upcoming FOMC meetings, with all of them considered to be live ones. That keeps next month a possibility for a tightening. More worryingly perhaps, when asked about the possibility of more quantitative easing, she merely observed that it was not being discussed, but was possible in the future.
Given this assessment, it is easy to see why many in the market do not believe the Fed will ever get around to raising interest rates, let alone before the end of this year. The consensus is probably rightly coalescing around a December move still, but the uncertainty Ms Yellen delivered will not make things any easier. Her confused message is likely to lead to even greater volatility in financial markets, which could potentially make it even harder for the Fed to pull the trigger, leaving it with few remaining options if the recovery runs out of steam.
Tim Fox is the head of research and chief economist at Emirates NBD.
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COMPANY PROFILE
Company: Eco Way
Started: December 2023
Founder: Ivan Kroshnyi
Based: Dubai, UAE
Industry: Electric vehicles
Investors: Bootstrapped with undisclosed funding. Looking to raise funds from outside
Essentials
The flights: You can fly from the UAE to Iceland with one stop in Europe with a variety of airlines. Return flights with Emirates from Dubai to Stockholm, then Icelandair to Reykjavik, cost from Dh4,153 return. The whole trip takes 11 hours. British Airways flies from Abu Dhabi and Dubai to Reykjavik, via London, with return flights taking 12 hours and costing from Dh2,490 return, including taxes.
The activities: A half-day Silfra snorkelling trip costs 14,990 Icelandic kronur (Dh544) with Dive.is. Inside the Volcano also takes half a day and costs 42,000 kronur (Dh1,524). The Jokulsarlon small-boat cruise lasts about an hour and costs 9,800 kronur (Dh356). Into the Glacier costs 19,500 kronur (Dh708). It lasts three to four hours.
The tours: It’s often better to book a tailor-made trip through a specialist operator. UK-based Discover the World offers seven nights, self-driving, across the island from £892 (Dh4,505) per person. This includes three nights’ accommodation at Hotel Husafell near Into the Glacier, two nights at Hotel Ranga and two nights at the Icelandair Hotel Klaustur. It includes car rental, plus an iPad with itinerary and tourist information pre-loaded onto it, while activities can be booked as optional extras. More information inspiredbyiceland.com
What is tokenisation?
Tokenisation refers to the issuance of a blockchain token, which represents a virtually tradable real, tangible asset. A tokenised asset is easily transferable, offers good liquidity, returns and is easily traded on the secondary markets.
The Last White Man
Author: Mohsin Hamid
192 pages
Published by: Hamish Hamilton (UK), Riverhead Books (US)
Release date: out now in the US, August 11 (UK)
Bundesliga fixtures
Saturday, May 16 (kick-offs UAE time)
Borussia Dortmund v Schalke (4.30pm)
RB Leipzig v Freiburg (4.30pm)
Hoffenheim v Hertha Berlin (4.30pm)
Fortuna Dusseldorf v Paderborn (4.30pm)
Augsburg v Wolfsburg (4.30pm)
Eintracht Frankfurt v Borussia Monchengladbach (7.30pm)
Sunday, May 17
Cologne v Mainz (4.30pm),
Union Berlin v Bayern Munich (7pm)
Monday, May 18
Werder Bremen v Bayer Leverkusen (9.30pm)
The lowdown
Badla
Rating: 2.5/5
Produced by: Red Chillies, Azure Entertainment
Director: Sujoy Ghosh
Cast: Amitabh Bachchan, Taapsee Pannu, Amrita Singh, Tony Luke
TWISTERS
Director:+Lee+Isaac+Chung
Starring:+Glen+Powell,+Daisy+Edgar-Jones,+Anthony+Ramos
Rating:+2.5/5
MATCH INFO
Rugby World Cup (all times UAE)
Final: England v South Africa, Saturday, 1pm
Five famous companies founded by teens
There are numerous success stories of teen businesses that were created in college dorm rooms and other modest circumstances. Below are some of the most recognisable names in the industry:
- Facebook: Mark Zuckerberg and his friends started Facebook when he was a 19-year-old Harvard undergraduate.
- Dell: When Michael Dell was an undergraduate student at Texas University in 1984, he started upgrading computers for profit. He starting working full-time on his business when he was 19. Eventually, his company became the Dell Computer Corporation and then Dell Inc.
- Subway: Fred DeLuca opened the first Subway restaurant when he was 17. In 1965, Mr DeLuca needed extra money for college, so he decided to open his own business. Peter Buck, a family friend, lent him $1,000 and together, they opened Pete’s Super Submarines. A few years later, the company was rebranded and called Subway.
- Mashable: In 2005, Pete Cashmore created Mashable in Scotland when he was a teenager. The site was then a technology blog. Over the next few decades, Mr Cashmore has turned Mashable into a global media company.
- Oculus VR: Palmer Luckey founded Oculus VR in June 2012, when he was 19. In August that year, Oculus launched its Kickstarter campaign and raised more than $1 million in three days. Facebook bought Oculus for $2 billion two years later.
MATCH INFO
Fixture: Ukraine v Portugal, Monday, 10.45pm (UAE)
TV: BeIN Sports
COMPANY PROFILE
Name: Xpanceo
Started: 2018
Founders: Roman Axelrod, Valentyn Volkov
Based: Dubai, UAE
Industry: Smart contact lenses, augmented/virtual reality
Funding: $40 million
Investor: Opportunity Venture (Asia)
UAE currency: the story behind the money in your pockets
COMPANY PROFILE
Company name: Almouneer
Started: 2017
Founders: Dr Noha Khater and Rania Kadry
Based: Egypt
Number of staff: 120
Investment: Bootstrapped, with support from Insead and Egyptian government, seed round of
$3.6 million led by Global Ventures
Company profile
Name: Steppi
Founders: Joe Franklin and Milos Savic
Launched: February 2020
Size: 10,000 users by the end of July and a goal of 200,000 users by the end of the year
Employees: Five
Based: Jumeirah Lakes Towers, Dubai
Financing stage: Two seed rounds – the first sourced from angel investors and the founders' personal savings
Second round raised Dh720,000 from silent investors in June this year
Company Profile
Company name: Hoopla
Date started: March 2023
Founder: Jacqueline Perrottet
Based: Dubai
Number of staff: 10
Investment stage: Pre-seed
Investment required: $500,000
Company profile
Company: Eighty6
Date started: October 2021
Founders: Abdul Kader Saadi and Anwar Nusseibeh
Based: Dubai, UAE
Sector: Hospitality
Size: 25 employees
Funding stage: Pre-series A
Investment: $1 million
Investors: Seed funding, angel investors