Fed expected to hike rates amid nagging worries

Investors’ have been experiencing the same anxiety as anticipation builds before the first interest rate hike announcement – likely this week. In a world where interest rates are higher than previous year, but still quite low by historical standards, and in which inflation will likely continue to be low, investors shouldn’t necessarily be investing in traditional “inflation” plays, like T-bills, gold, or higher growth bonds.

In addition, “Housing is another area where rates are starting to rise but they are at low rates and demographics support housing”. As we all know, that prediction turned out to be the furthest from the truth.

The big moment is finally here: the Federal Reserve is about to make a big push upwards with interest rates for the first time since the recession began back in 2008 – and some people are anxious. Consumers tend to respond to this by spending cash instead of saving it. That spending could be by investing in the stock market, completing home-improvement projects, or simply going out to eat more.

What will rates look like in 2016?

“If they don’t go, that sends the wrong message about confidence in the economy”.

“We’re all expecting the rate increase, and once the rate is increased, the uncertainty – most of it – will lessen”, he said.

What specific numbers should you expect? The monetary policy snapshots below may provide a bit of perspective on the broad macro landscape as we head into the end of 2015 and get ready for the new year.

“The Fed moves interest rates up because the economy is good, not because it’s bad”, she said.

The US labour market is a long way from full employment even though the unemployment rate is 5%. People who held high-yield investments saw in August just how poorly these vehicles can behave when there’s a whiff of possibly higher interest rates. That isn’t necessarily true. So far in this economic cycle, that has not happened, but it’s a serious concern for the economy.

Second, cheap money can also encourage businesses and individuals to take on too-much debt, a cycle that ultimately leads to bubbles and crashes.

But why hike now when inflation is still so low?

Phil Lachowycz of Fathom says: “In terms of how it’s going to be for the United States economy, I think it will be absolutely fine”.

Valuations were high coming into the year and Wall Street did not expect much USA profit acceleration.

Preventively, other central banks – most notably the European Central Bank and the Bank of Japan – have launched massive asset-purchasing programs to compensate for the anticipated reduced global liquidity the Fed’s restrictive monetary policy will have once it starts raising rates.

That underwrites the firm’s gradual pace estimates on interest rates. Net interest margins essentially measure the difference between what a bank pays out in interest expense versus what it receives in interest income from loans.

Atlanta Fed president Dennis Lockhart recently signaled a similar approach, flagging “direct evidence” of inflation rising as his hurdle for future rate hikes.

Now consider the opinions of the American public six years into this recovery. During the 12 months from the 2014 fourth quarter through the 2015 third quarter, Bank of America reported $16.3 billion in net income. Now, after a gap of seven years, the rates are set to move higher. In October, single-family rental starts dropped by 2.4 percent down to an annualized rate of 722,000, but dropped by 11 percent overall after being pulled down by a 25 percent decline in multi-family starts down to a 338,000 annualized rate.

And, if future economic developments were to suddenly undermine the wisdom of the Fed’s move there could be massive fluctuations between the stocks and the bonds, which at the end of the day means somebody won and somebody lost, or it could mean most everybody lost something.