An early Fed rate hike is more risky

Most investors seem to be optimistic about a strong rate hike by the end of December. Gold futures on Friday extended their losing streak to a seventh straight session, settling at their lowest level in more than three months after a better-than-anticipated jobs report made a December interest-rate rise look more likely.

The dollar’s surge is proving a double-edged sword for USA policy makers weighing how far to tighten policy.

The survey of over 80 leading economists found a 70 percent median chance the USA central bank would raise its short-term lending rate at its final meeting of the year, next month.

“With (Fed Chair) Janet Yellen holding firm on a December rate hike expectation during her testimony to Congress on Thursday, and then the massive beat from the non-farm payrolls (NFP) on Friday, 2015 has been realigned with the beginning of the year’s expectations of at least one rate hike”, wrote Evan Lucas, market strategist at IG in Melbourne.

Improvements in the labour market have brought the unemployment rate down to 5 per cent, just a smidge above Fed officials’ median estimate of the unemployment rate’s long-run rate of 4.9 per cent.

Mr Rosengren said gross domestic product should grow slightly above its long-run potential rate, which he pegged at “somewhat below 2 per cent today”. It’s a popular instrument for starters, with over 15,000 active investors following gold movements, but the majority still do not buy into the $1,000 calls, with 87 per cent of clients buyers of the precious metal. “We see a few makeup from hiring that was put off when the economy was hesitant in the late summer and early autumn”, said Patrick O’Keefe, director of economic research at CohnReznick. That figure has fallen in recent years as the aging population and increasing retirements by baby boomers have slowed the growth of the USA workforce.

“To my mind, the decision was a close call, in part reflecting the crosscurrents we’re navigating”, Williams said in the text of a speech delivered Saturday at an education event in Tempe, Arizona.

Speaking in Portsmouth, R.I., Federal Reserve Bank of Boston President Eric Rosengren suggested that the economy is on track to meet the main condition the Fed has set for raising rates, namely that it is strong enough that inflation will rise to the Fed’s 2 percent target.

“A lower pace reduces the risk that the Committee takes more or less aggressive action than needed or intended”, he said.

Rosengren said he supported the October statement while repeating his preference for moving gradually thereafter.

With rates so low, the risk is that investors seeking a higher return could be taking on too much risk in order to improve returns, not fully preparing for the day that interest rates move higher.

He also said there may already be evidence of such “search for yield” behavior in the commercial real estate market.