With regards to US economic recovery, it is simply a question of when the Fed will end its monetary intervention?
Here, we provide a preview of HedgeSPA’s newsletter – HedgeSPA Market Scenarios April 2014.
US Economic Recovery
Ms Janet Yellen, head of the US central bank, has been quite clear about the Fed’s consistent effort in retreating from its bond-buying program. In addition, she has recently signaled that plans for increasing interest rates may come in early 2015. This is certainly big news to the financial markets, and global markets declined after her statement.
While this news may come as a shock to some investors and analysts, it goes to show investors’ confidence in US economic recovery, which is precisely why the Fed slowly retracts their role in stimulating the economy. Despite so, Ms. Yellen did play down the confidence by emphasizing that the US economy still remains weak at its current state. Hence the Fed will persist in normalizing unemployment and inflation rates in the upcoming future. However, evidence of a strengthening U.S. economy can be seen from the recent stress test conducted by the Fed. The results have shown that major US banking institutions are much better- positioned in continuing their lending activities while meeting their financial obligations during severe economic scenarios, as compared to five years ago.
Amongst the 30 largest, most complex bank holding companies (BHCs) assessed, 29 of the banks are able to withstand severe economic turmoil. Zions Bancorporation is the only BHC that failed to meet the minimum allowance of Tier 1 common capital ratio of 5%. However, the overall results have shown a financial sector that is more resilient, in which major financial firms hold stronger capital positions. Overall, it does seem that the US economy is experiencing a self-sustaining recovery.
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HedgeSPA Research Team – April 2014
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