In May 2013 the then Fed chairman Ben Bernanke told Congress that later in the year can start reducing purchases of securities if economic data are good enough. The prospect of contraction of incentives caused panic in the markets, the demand for security has led to a spike in yields on government debt. Because of this careful communication with the markets has become a major priority for the successor Bernanke – Janet Yellen.
The dollar, which had already risen by 21% in mid-2014, gradually became the main focus of discussion at the Fed raising interest rates. Weak growth and loosened monetary policy abroad increased capital flows to dollar-denominated debt. The trend became particularly evident after the ECB began its program of printing money in March 2015 after raising interest rates in the US these processes can be accelerated, which will raise the cost even more dollars. This risk will not give up the Fed from lifting interest rates, but likely to delay the next steps. In early December, Yellen said that “the dollar is one factor that will probably make monetary policy be changed gradually.”
Foreign exchange rate risks were highlighted in August when China launched a surprise devaluation of the yuan. The second largest economy in the world allow its currency to depreciate in response to slowing economic growth, which has led to large losses of domestic and international capital markets. The move to Beijing is cited as one of the factors that led the Fed to postpone raising interest rates in September.
The main reason for the Fed to keep interest rates close to zero seven years is that economic growth is not particularly good. The deep recession was followed by recovery clearly enough, as credit standards remain tight, which prevents the passage of easy money from the financial system to the real economy. The moderate growth in the US, though better than in Europe and Japan, means that it will take much longer to recover all lost during the crisis.