Brace for the federal hike

Here’s what you need to know about how the Fed’s action will affect you.

The Fed’s policy body, the open market committee, meets tomorrow and on Wednesday to weigh raising the Fed funds rate, a short-term peg for interbank lending that influences rates throughout the financial system, from 0%-0.25% to an expected 0.25%-0.50%.

Contrasting the Fed’s earlier ambivalence on conditions prevailing in the labour market, prospects of economic growth and position on price stability, Yellen’s current assessment carries far greater clarity.

Investors will scrutinize the Fed’s statement and Chair Janet Yellen’s news conference afterward for clues to what might cause an acceleration of rate increases over the next year. Instead, the departure is sure to have market and political ripple effects on shores near and far. In contrast, when the Fed resumed raising rates in 1994, it boosted them six times to 5.5 percent from 3 percent.

New York Fed President William Dudley said the prospect of a September rate hike “seems less compelling”, and the proportion of economists in that Bankrate survey predicting an increase dropped to 40%.

Core inflation, which excludes temporary or short-term price volatility from things like oil, has “been modestly drifting up and we are seeing the beginning of wage pressure”, said John Bilton, head of global multiasset strategy at JPMorgan Asset Management. Even now, high-yield bond prices are at levels usually associated with a recessionary environment.

What Fratantoni wonders about is what will happen after the Fed raises the benchmark rate, what its plan will be going forward.

The potential for unintended consequences from a rate hike will also coincide with the home stretch of the 2016 Presidential elections.

Underlying all this uncertainty, there is a huge debate going on in the financial media about whether the USA economy is “mid-cycle” or “late-cycle”.

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.

There is jitteriness in the markets which might continue till the final announcement is made. Prices picked up more than expected in October as rent and medical costs continued to rise. Goldman expects the Fed would remove cautious language about monitoring inflation developments closely.

For now, the Fed’s preferred inflation gauge has risen a scant 0.2 percent over the past 12 months. The probability traders assign an interest-rate increase from the Fed at its meeting is 76 percent, according to futures data compiled by Bloomberg.

The Fed stance would in complete contrast to what the European Central Bank (ECB) did. Expect the monetary divergence to be the main macro theme in 2016 yet again if Yellen hikes. One, the relative strength of the dollar in relation to the euro appears to be the key determinant of the strength in the dollar index.

If you put money in your savings account or have certificates of deposit, you earned nearly zero interest in the last seven years. Making matters worse, the Brazilian Real has plunged during what Goldman Sachs has deemed an “outright depression” enabling debts denominated in USA dollars to become crushing.

Media reports have depicted her working behind the scenes in recent months to build consensus behind a rate hike.