Monetary Moves

Switzerland Banking on Fed Hike

Thomas Jordan DPA
Thomas Jordan, head of the SNB.
  • Why it matters

    Why it matters

    Next week’s meeting of the Federal Reserve is widely expected to hike interest rates for the first time in a decade, which is likely to spark major capital flows into U.S. assets — to the relief of the Swiss central bank.

  • Facts

    Facts

    • Financial markets expect the Fed to hike its key interest rates by a quarter point at its next policy meeting on Dec. 15 and 16.
    • A Fed increase will likely lessen the upward pressure on the Swiss franc. Switzerland’s economy is heavily export-oriented and a strong franc dents sales abroad by making Swiss products more expensive in other currencies.
    • Markets expect the Fed to continue raising rates in small steps in 2016. But some economists expect a stronger tightening.
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    Audio

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The conservative Swiss guarantors of financial stability would prefer to avoid a repeat of the turmoil they suffered on January 15 this year. On that Thursday, the Swiss franc shot up 30 percent against the dollar and the euro after Switzerland’s central bank bowed to market pressure and abandoned a three-year cap of 1.20 francs to the euro as investors fleeing the euro crisis piled into the rock-hard currency of the wealthy Alpine state.

A strong franc is poison for Switzerland’s export-heavy economy. Thomas Jordan, governor of the Swiss National Bank, the SNB, isn’t to be envied.

His central bank is wedged between the European Central Bank and the U.S. Federal Reserve, whose monetary policies have a huge impact on Switzerland.

Even the timing of of the SNB’s next policy meeting on Thursday is difficult. It comes one week after the ECB cut its deposit rate and extended its monthly asset buys by six months, and six days before the next meeting of the Fed, which is widely expected to go the opposite way and start raising interest rates.

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