Deutsche Bank Defends Fed, Says Rate Hike Is Not A Mistake

That’s a sentiment shared by many economists, financial analysts, and investment managers, following months of faux drama swirling around when the Federal Reserve might nudge interest rates off the zero mark.

Will the Fed hike its rates in December?

If that were to hold, the Fed would need to raise rates roughly every other meeting in 2016 – an unlikely outcome at this point in time. Especially in emerging markets, where currencies and other assets have plunged in value this year, that process has already started.

Second, the Fed has gone to extraordinary lengths to persuade investors that the trajectory of rate rises over at least the next couple of years will be very shallow.

Sonia: It has not been a great start to the festive season; December has seen the S&P and the Dow move into negative territory for the year. And the problem with raising interest rates is that you make investment in businesses less profitable and so you make it more hard for wage earners. If rates stay near their historic lows, many prospective buyers will realize that they still can afford a new home and will buy one, anyway.

If you have a credit product that has a variable interest rate, you can expect that rate to increase when the Fed raises the benchmark, said Jeffrey Christakos, a certified financial planner with Westfield Wealth Management in New Jersey. Like other strategists, they expect a gradual upwards trajectory for short-term interest rates, following this month’s likely 25 basis-point rate increase.

Given the sheer percentage of market participants that expect a rate hike, matched with recent strength following fundamental developments that hint to rising rates, it’s more likely than not that the market will react negatively if the Fed does not announce a rate hike in some capacity.

It’s tempting to think that this might be a case of “famous last words” but I don’t think it will be.

We’ve discussed numerous times that rising rates don’t spell doom for bond and equity investors alike.

Meanwhile, mortgage rates are based on the price of mortgage-backed securities and such bonds are US dollar-denominated.

Strong October/November employment numbers, declining unemployment rates and decent consumer confidence have fueled the chances of an imminent lift-off. We are actually seeing the fact that the United States dollar has actually depreciated a bit, I mean going back from the 100 U.S. dollar index now to 97 USA dollar that actually released some of the pressures that we are seeing from the FOMC members.

Policymakers have said for some time that the jobs side of the Fed’s mandate has been fulfilled.

Indeed, 82% of economists surveyed said they thought the Fed’s credibility would be damaged if it didn’t raise rates next week, up from 65% who said so last month. This may go a long way toward explaining why the USA economy’s performance was below most economists’ expectations this year. I don’t think it will. ¦. A lot of the administration and reforms that we have expected from Prime Minister Modi has not really come in yet. The central bank will also let about 130 money funds place funds with it and earn interest via an overnight reverse repurchase market created to mop up extra cash.

Elevated bond prices depend on the continuation of ZIRP.

In any event, if this all affects you, you may want to pay attention to the Federal Reserve’s Federal Open Market Commmittee’s meeting on Wednesday, where they’ll be discussing increasing the interest rates.g.