At 2:30 p.m. ET today, the Federal Reserve Chairman is hosting a press conference on the fate of interest rates.
Here are some key things to watch for:
- The fed has been buying bonds at $85B/month. Will the fed taper off this quantitative easing (QE)? If so, how much?
- What are the implications of the risk of a liquidity squeeze in China?
- How will QE tapering effect the gold markets?
- What impact will QE tapering have on the rest of the world? There’s speculation emerging markets like South Africa may be at highest risk.
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Expect slow growth in high income countries and slow growth in developing countries.
Key risks include:
- Quantitative easing: The massive surge of capital outflows to emerging and other developing economies is having a major impact. Corporations with sound credit ratings, attracted by the low borrowing costs, have taken on more debt, thus increasing their exposure to foreign exchange. As a result, their vulnerability to future interest rate changes in the developed world and the overall exchange rate volatility will increase.
- Commodity prices:
- Industrial commodity prices are easing due to new supply, however;
- Rising global food demand will push up prices 10 to 40 per cent over the coming decade.
- Growth in food production has slowed over the past decade even as rising incomes in developing countries boosted consumption
- Higher prices will have their biggest impact in developing countries.
- Higher interest rates are a cause for concern for developing countries.
- Downgraded prospect for growth in Europe.