Global macro overview for 30/11/2017

The closer to the end of Janet Yellen’s term, the Federal Reserve Chairperson expresses increasingly bold theses. The head of the most important central bank of the world, this time referred to the huge US debt. During her last career speech in front of the US Congress, Yellen delivered a fairly standard speech summarizing the current state of the US economy and the Federal Reserve policy. Much more interesting was the series of questions from the Congressmen. “I am very concerned about the possibility of sustaining the trajectory of US debt growth. Currently, our debt-to-GDP ratio is 75 percent. This is not a scary level, but it is not low either. But when it comes to forecasting the Congressional Budget Office, there are things that people should be dreaming of ” said Janet Yellen in the context of planned tax reforms, which could further boost the hole in the US budget. At the end, she added: “If we allow the economy to overheat, then we will be in a situation where we will have to raise interest rates and drive the economy into recession. We do not want to cause cycles of boom and collapse”.

At present, US public debt is over USD 20.5 trillion. A 75 percent, which Janet Yellen mentioned, is the debt-to-GDP ratio excluding the debt securities held by US government institutions (the total debt to GDP ratio has already reached 100 percent). According to forecasts mentioned by the Fed Chair, if there are no profound changes in US public finances, by 2047 the debt-to-GDP ratio will increase from the current 75%. to 150%. Federal Reserve critics often recall that it is the Fed low-interest-rate policy that allows the American authorities a powerful increase in debt. Quite to say that from December 2008 to December 2015 – that is, during the period in which the Fed kept rates close to zero – US public debt rose by 77 percent. Moreover, as part of a quantitative easing program, the US central bank purchased secondary government bonds on the secondary market, and the profits from that transaction, legally, were transferred to the Treasury Department.

Let’s now take a look at the US Dollar Index technical picture at the H4 time frame. After a bounce from the level of 92.54 the price tried to rally, but so far was capped at the technical resistance at the level of 93.39. This local high might be labeled as a lower high and now the price must rally higher towards the level of 94.03 to break the sequence of lower highs and lower lows.

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