The Fed is 'dread-locked' – any rate rise will be an only child

The fear of making a disastrous policy mistake is keeping the Federal Reserve from raising interest rates, says Dr Peter Warburton.

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There are two good reasons to expect the US dollar to strengthen further. The first is that the US economy might awaken from its slumbers and churn out another impressive burst of growth. In that case, members of the US Federal Reserve's interest-rate setting committee would appear as bumbling Keystone Cops, way behind the game. The front part of the US yield curve would steepen to reflect a faster pace of tightening than that currently priced in, boosting the positive carry into US dollars out of euros and yen (in other words, traders could earn higher interest payments by swapping their euros and yen for dollars, driving the dollar higher).

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Dr Peter Warburton is director of Economic Perspectives Ltd.