A compromise solution from America
As predicted by experts and signals from the market, the US Federal Reserve (Fed) decided to keep the Federal Funds Rate (FFR) unchanged in the 2-day meeting that ended in the early morning of November 2 (Vietnam time).
This is the second consecutive time that interest rates have not been raised. Previously, since March 2022, the Fed has raised interest rates 11 times in a row to a 22-year high of 5.25% - 5.5%.
Thus, the Fed has not pushed monetary policy to a new level of tightening. The looser trend is aimed at not affecting the economic recovery and negatively impacting the country's labor market, even though inflation remains high.
According to the Fed, economic activity grew strongly in the third quarter of 2023, and noted the labor market with the number of jobs "cooling down from the beginning of the year, but still high".
In the third quarter of 2023, the US recorded 4.9% GDP growth.
The Fed did not raise interest rates in the context of the US labor market weakening for the third consecutive month, with the number of new jobs in October reaching only 113,000 cases, lower than the expectation of 149,000 jobs that economists had previously given. This is the 12th consecutive month that US workers' wages have decreased.
The war in the Gaza Strip remains fierce and has the potential to spread, potentially affecting the global economy, including the US.
US bond yields have recently risen to the dangerous 4.8-5%/year zone, worrying Wall Street and pushing the stock market down. Meanwhile, inflation has cooled significantly compared to the 2022 peak (9.1%/year). US core inflation in September was at 3.7%, still high compared to the 2% target but much lower than before.
The sell-off of US bonds and the negative impacts on the global financial market and the US economy… are also factors leading to the decision to stop raising US interest rates. Recently, the USD has skyrocketed, many other currencies including the Japanese Yen have plummeted, while stock markets in many countries around the world have fallen sharply.
On the other hand, the quantitative tightening program continues with a net withdrawal of 60 billion USD/month, expected to last until August 2024.
The Fed also implied that because the US economy is expected to remain resilient, the US central bank may have to maintain a tightening stance for an extended period of time.
Global financial market stable, concerns about exchange rate in Vietnam decrease
Immediately after the policy signals from the Fed, the world financial markets quickly stabilized again.
The DXY index (measuring the fluctuations of the USD against a basket of 6 major world currencies) has dropped sharply from 106.8 points last night (Vietnam time) to 106.3 points this morning, November 2.
Previously, many people were concerned that if DXY reached 110 points, the State Bank of Vietnam would face difficulties and may have to use more measures to intervene, including selling foreign exchange reserves like in the fourth quarter of 2022.
The US stock market also rebounded after a month of gloom and sharp declines. The Dow Jones Industrial Average rose more than 200 points after the Fed's decision. The S&P 500 and Nasdaq indexes both rose sharply.
The yield on 10-year US government bonds fell sharply to 4.715% per year on the morning of November 2, much lower than the previous danger zone of 4.8%-5%. The yield on 30-year bonds fell to 4.945%, instead of the previous level of 5.1-5.3%.
Oil prices fell very quickly, falling about 3% with WTI down to $81/barrel, and Brent down below $85/barrel, even though the impact of the Israel-Hamas war is still great.
Mr. Huynh Minh Tuan, founder of FIDT Investment Consulting & Asset Management Company, said that the Fed's decision has a positive impact on Vietnam in terms of macro and monetary policy.
According to Mr. Tuan, the pressure to absorb liquidity and exchange rates may cool down and the USD in the free market will return to below 24,500 VND/USD.
According to him, interest rates in Vietnam continue to have room to remain low and long-term.
As for the stock market, when the exchange rate stabilizes and interest rates are low, foreign capital will stop withdrawing and may reverse to net buying.
Investor sentiment will also stabilize after a recent period of concern over rising exchange rates, and many say the State Bank may reverse its monetary policy and withdraw money, affecting the economy's recovery.
This week, the European Central Bank (ECB) also has a monetary policy meeting.
Previously, the Bank of Japan kept interest rates low but was under great pressure when the yen fell to 150 yen/USD. This is the lowest level in more than a year and is considered a "danger" zone.
A decision by the US to stop raising interest rates could help stabilize the world financial market, including Vietnam, even though there are still many factors affecting exchange rates, inflation and the recovery of the economies of countries, especially in Asia.
Geopolitical conflicts remain difficult to control. The Chinese economy faces many risks, including the crisis in the real estate market.
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