American President Donald trump meets with the candidates for the post of Chairman of the Federal reserve system (FRS). Among them the current Chairman Janet Yellen, whose chances of market estimates is relatively high, although a favorite, she is not considered a direct criticism on the part of trump during the election campaign has not been forgotten. Someone said about the five contenders, someone calls with a larger number. It is anticipated that trump will name his choice before the big Asian tour that will start on 3 November. The selection of the chair of the regulator of the U.S. economy — the event is not purely American, it excites the whole world. To influence this choice maybe in Russia.
Stubs and challenges of the global economy
It would seem that we are on the case, whether there will be Janet Yellen, the current Chairman of the Federal reserve, in his post or in February 2018, when the term of her four-year contract, it will not be renewed and the fed will have a new chief? After all, in the US, even the bankers will hardly be able to remember who heads the Bank of Russia and even more so to call him the Chairman’s name. And in the Bank of Russia every time we urge that decisions dollar controller, directly on the Russian economy is not affected.
Really personnel choice that needs to be done to Donald Trump, we will touch on. There is, of course, the sense that the new head of the fed or kept his post to Janet Yellen, practicing trust trump, immediately rushed to intrigue Russia. The Russian economy, which accounts for 2.6% of global GDP, frankly of little interest to the fed. Then what is our interest in the us the Federal Reserve?
It’s simple. The fed is the regulator of the world economy number one, because the dollar, like it or not, is the world’s number one currency, like the US economy — the first country in the world economy. And if we take it for granted that the economic policy is meaningful and purposeful action, the fed is not yet convinced that realized the new realities prevailing in the world economy in result of global crisis of 2008. It was a crisis of balance sheets of major financial institutions like major banks and the country’s budget than a particularly marked Europe. And if he manifested an exploding “bubble” inflated in the result of the loose monetary policy of regulators (especially the fed and the ECB), anti-crisis policy became even more mitigation. In Europe it came to negative rates of Central banks, but this is still not enough and needed the extra money that throws the markets through buying securities regulators.
On the one hand, this policy has led to the revival of the economy; on the other it is obviously a dangerous new wave of next debt crises. The impasse reflected in the fact that as you turn to the normalization of the credit system and the enhancement of the rate controller, which went so far only the fed (the rest of the regulators — the ECB, the Bank of Japan, Bank of England — continue to be under the ultra-loose monetary policy), the cost of money obviously brings the prospect of a return of the debt crisis. The question is, or the rise of the economy will have time to improve the situation, or the beginning of the ascent extinguish backlog and rising debt.
So, first of all, the fed will take the challenge and find a way out of this impasse catatoga. How will this happen, how successful (or record) would be a quest directly related to the prospects of the world economy. And our Russian — as part of the world.
The price of oil, the ruble and the inflation target
In fact, the Russian economy in General and the Bank of Russia in particular regularly receive “greetings” from the fed. To speak about full independence of monetary policy of our Central Bank the fed is simply meaningless — because the policy of the American Federal reserve influences through the dollar on oil prices, which, in turn, the Russian economy and especially our budget depend, is undisputed.
So channels of influence of the American regulator on the Russian economy several. First, oil. No matter how many calls to the currency of payment for oil was not “American”, while oil and the dollar is firmly connected. They could not tear apart nor Petersburg stock exchange with the sale of Russian oil for virtually any, or the attempts of Iran, which at the time was trying to sell oil for euros. And since oil is quoted in dollars, there is a trend: the price of a barrel and the dollar move in opposite directions. So the market finds a balance. Of course, this trend is not always directly evident, the price of oil immediate affects many factors: the geopolitical situation in General to solutions and prospects for OPEC+, from a state with reserves of “black gold” to the action of different kinds of armed groups in mining and infrastructure to transport the oil. But the actions of the fed and its policy of growth of rates in General, it also strengthens the dollar and thus reduces the price of oil — a market which is taken into account.
Secondly, the ruble. It is clear that the price of oil, in turn, has an impact on the ruble. But the fed has other channels. The Bank of Russia reduces its key rate, the fed raises its. The result is shrinking margins, which can be obtained by taking the dollars in the US at low rate loans, exchanging them for virtually any, virtually any invested in Russian securities at interest rates that are much higher than the us average level, and raising the dollar income after the conversion, they received virtually any. The rate of convergence is still very distant from each other the rates of the Bank of Russia and fed and evaluation of early changes in the rate directly affect the value of dollar-denominated deposits in the Russian paper, and the volume of foreign currency supply, in turn, supports the current exchange rate.
Thirdly, inflation. It’s not so much the level of inflation, although the strength of the ruble and a particular trend in the exchange rate on the inflation rate, of course, affect how much the attitude towards inflation as the main target (purpose) of the regulator. On this issue opinion Janet Yellen has undergone a curious evolution. September 26 it is acknowledged that it is not necessary to expect acceleration of inflation to 2% in order to raise the fed rate. This is a fundamentally new twist. Still in the US the fetish acknowledges the traditional target, in which first, inflation is not below 2%, and then raising rates. You can understand the traps of low inflation in conditions of America. But the main thing is that Yellen acknowledged that the dogma until recently was one of the cornerstones of its financial policy. This is not a hasty statement and the assessment made on the basis of long experience of regulation, clearly gave Yellen a hard time. But a reassessment is done and its driving motive is the interests of financial recovery.
If the effect of the decisions of the fed — it is also the lessons that are there to learn, the lesson is that what level of inflation is normal for an economy decides the economy itself. The task of regulators is not to push, and to carefully monitor the dynamics of economic processes and to draw conclusions based on the interests of the economy, not their own slogans.
Will lead if the fed Indiana Jones?
Go back to Washington. Who can replace Yellen? Among the candidates are very different people. There are representatives of the fed — Board of governors of the Federal reserve and Jerome Powell and former member of the fed Board of governors Kevin Warsh. But much more interesting look (which, however, does not mean their leadership in the race of applicants) two colorful figures: the Director of the National economic Council, United States Gary Cohn and former Deputy Minister of Finance John Taylor.
Con came in economic policy from the business for 25 years, he passed all the career stages of a major wall street investment-financial conglomerate Goldman Sachs, which in the end headed. 20 Jan 2017 he is a senior assistant for economic policy, Donald trump and the Director of the National economic Council.
However, he seems to have become disappointed in politics as such, whether in how it is trump anyway, back in August flashed information about the fact that he is willing to resign, then it was repeated in early October. On the other hand, this information can be the course that the Con is going to achieve their political goals. In any case, although he fits perfectly into new the President’s men, which trump the gains from big business, on a post of the Chairman of the fed he will look a bit unusual. Of course, the fed”s history it was often led by the bankers, it was created in 1907 with the efforts of not only the President of the United States, as banker John Pierpont Morgan, but the “fashion” of recent decades is that it should lead people with good academic background. And Kona is not even as if we have said, higher economic education.
In this sense, John Taylor is his complete opposite. It combines quality, without exaggeration, the famous economist and established policy. The name of The scholar gave him the “Taylor equation”. It is attractive in its simplicity, the equation is so short that Taylor put it on my business card. From this equation it follows the “rule” or the “Taylor principle”: the Central Bank should react to inflation more than proportionate increase in interest rates.
However, Taylor is far from the image of an armchair scientist. In his biography there is absolutely Hollywood episode, making it similar to Indiana Jones. Working a Deputy Finance Minister and was responsible for international activities, Taylor in 2003, after the fall of Saddam Hussein, became the “father” of the new Iraqi Dinar. The problem was that the introduction of new dinars printed at seven factories in different countries and brought to Iraq by planes, could lead to excessive demand for dollars and lead to the complete depletion of the international reserves of the country. But the operation was planned and conducted so that the opposite happened: people began to exchange dollars for dinars, and reserves increased. Taylor was awarded the award “For outstanding service” of the Ministry of Finance of the United States.
So who will choose the same trump? Its main criterion, judging by the public speeches of the President — focus on soft dollar, which should support economic growth, and, consequently, on the policy of low interest rates or her slow recovery. Taylor with his equation can the President not to arrange. The favorite of the race at the finish line is Jerome Powell. He’s not so bright as Taylor or Con, but in his active work in the Board of governors of the Federal reserve, that is, continuity in the leadership of the regulator. He has experience not only as an investment banker, but, more importantly, a lawyer serving investment transactions.
The one who will choose the President, of course, be independent in decision-making within the Federal reserve, about any “order” from the President, no question, but if the new Chairman of the us regulator”s expectations trump, he will pursue a policy of low fed rates. And such a policy in the interests of Russia. The softer dollar, the ceteris paribus more expensive oil. What is required, and our budget.
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