Soft inflation unlikely to derail December rate hike in U.S.

FED FOCUS: A number of Federal Reserve officials, including Chair Janet Yellen and Vice Chair Stanley Fischer, gave speeches Thursday but offered little clarity on timing of an interest rate hike, a move that would end an era of stimulus policies that have boosted stocks.

In early October, before last week’s strong USA jobs report, 65 percent of forecasters predicted a December lift-off, the newspaper said.

Because the average American household’s mortgage and vehicle loans are mostly borrowed at long-term fixed interest rates, a hike in interest rates will not increase the burden on these households but will increase their interest income from deposits.

US retail sales increased a weaker-than-expected 0.1% in October from the month before.

Auto sales, though still at a high level, unexpectedly dropped 0.5%, taking back a portion of the 1.4% increase recorded in September.

“There is a lot of uncertainty in the market about what will happen if the Fed eventually decides to hike rates”, Thea Fourie, an economist for sub-Saharan Africa at global risk adviser IHS, said by phone from South Africa’s capital, Pretoria.

“Equities have had a great recovery, and the bond market has seen yields drop to a few of the lowest levels we’ve ever seen”, Mr. Tipp said.

THE Reserve Bank’s monetary policy committee goes into its final meeting of the year, there are hard growth and inflation questions on both the “pro” and the “con” sides of its interest rate decision.

In a note this week, he says that investors should believe Yellen when she says that interest rate rises are likely to be slower and shallower than in the past because the United States central bank is determined to push inflation up, and to keep it higher.

“Avoiding a Japan-like experience, in which inflation expectations have become unanchored to the downside, should be an important consideration in the conduct of monetary policy”, Dudley said.

But Davidson said people wouldn’t complain if a doctor, in this case the Fed, feels a patient, the US economy, is doing well enough to have its strong medication, a zero-rate policy, removed. “With upcoming data expected to provide further confirmation of solid economic growth, our outlook for monetary policy is that the fed funds range will rise 25 basis points to 0.25% to 0.50% at the December 16 policy meeting”.

The key for financial advisers will be the ability to look past the initial reaction toward a reality that, for the most part, won’t be much different than it is the day before the Fed decides to raise rates. Total receipts were $211 billion, a 1% decrease. Crude futures, meanwhile, slumped to near six-and-a-half year lows in Thursday’s session amid further signs of a glut of oversupply on global energy markets.

Wholesale gas prices rose 3.8 percent in October, the government said.

Despite the disinflationary pressures, the forward-looking Fed is unlikely to wait to see “the whites of inflation’s eyes” before raising interest rates.