Emerging Markets / August 2, 2017

Interest Rates in the United States and the Eurozone

The Federal Reserve of the United States was created in 1913 with a dual statutory mandate of maintaining price stability and fostering maximum employment. Currently, the Chair of the Federal Reserve is Janet Yellen, who serves as the institution’s fifteenth chairperson. Appointed by president Obama in 2014, Chair Yellen is serving a four-year term, which is renewable; however, this possibility seems politically unlikely. In the most recent meeting of the Federal Open Market Committee (FOMC), held on July 25 and 26, the Federal Reserve decided to maintain the funds interest rate that it had established during its previous meeting in June, at a range between 1.0% and 1.25%. This decision is a sign of moderate optimism and a continued positive performance by the national economy. During the month of July, the Dow Jones Industrial average has continued its record growth closing at more than 21.960 points on August 1. Similarly, unemployment in the United States has been falling during the summer months and economic activity has increased as well as household spending. Meanwhile, overall inflation remains below the 2.0% target rate, mainly because of the prevailing low energy sector prices due to increased oil and gas output as well as pipeline projects. In this regard, the Federal Reserve stated that it expects overall inflation to remain slightly below its 2.0% target through the next year. If the national economy continues on its course of sustained growth, it is expected that the Federal Reserve will raise the federal funds interest rate once again this year. The next meeting of the Federal Reserve’s FOMC is scheduled for September 19 and 20.

Interest Rates in the United States and the Eurozone

In the case of the European Union, the European Central Bank (ECB) and its President are in charge of maintaining economic stability within the Eurozone, which is composed of 19 EU member states. The ECB was established in 1998 with headquarters in Frankfurt and its only stated objective is maintaining price stability by keeping yearly inflation under 2.0%. The third and current President of the ECB is the Italian Mario Draghi, who began his eight-year term in 2011. The most recent meeting of the ECB’s Governing council, which is composed of 25 members from all Eurozone member states, was held on July 20. During said meeting, it was decided that the Eurozone interest rate for main refinancing operations would be kept at 0.0%, while the interest for marginal lending facilities would be kept at 0.25%, and the rate for deposit facilities would be kept at -0.4%. These interest rates have not been modified since they were established in March 2016, hoping to jumpstart the economies of the Eurozone. Furthermore, these are the lowest rates that the ECB has ever set for the Eurozone in its almost two decades of existence. The highest interest rates ever held by the ECB and the Eurozone were of 4.75% for main refinancing operations set during the autumn of the year 2000.

(Read more about Eurasian Agribusiness and Economics in Armenia)

Latest Media