U.S. rate hike expected as Fed meeting looms

The Federal Reserve shied away on October 28 from a long-awaited interest rate hike, preferring to monitor “global economic and financial developments”.

This will be the central bank’s first rate hike in 10 years. Instead, the central bank hopes to manage the fed funds rate by changing two other rates: the interest it pays to banks for reserves held at the Fed and the amount it pays other financial institutions, such as money market funds, for short-term trades known as reverse repurchase agreements.

While Yellen has acknowledged that the economy’s future is “uncertain”, she also has warned that delaying rate hikes for too long could eventually force the Fed to raise rates rather sharply.

To varying degrees, all that weighs on the US economy and the Fed. Such rates have been at painfully low levels. Yaylaci forecasts that rates will peak at 3.25 percent in late 2018 and remain there into 2020. Home sales are expected to total about 5.7 million this year, up from 5.4 million in 2014 and 4.6 million in 2011.

Meanwhile, the greenback has risen broadly as a rate hike is seen as a plus for the U.S. currency.

In the case of oil producer Nigeria “as the Fed tightens and the dollar gets stronger, you will see more pressure on the Nigerian naira”, predicts Jermaine Leonard, Fitch ratings agency director.

Since 2008, the government has kept rates near zero percent, which helped combat things like unemployment by pumping more money through banks.

In connecting Federal Reserve interest rate policy since the 1950s with inflation and employment conditions, some interesting results materialize.

With interest rates as low as they are, making money from loans is more hard.

“The economy is doing well, but it’s not booming” said John Silvia, chief economist for Wells Fargo & Co., in Charlotte, N.C. “Where is the push to increase rates any further?” With most other aspects of macroeconomic policies essentially frozen due to political constraints – particularly fiscal and structural reforms – it will be up to the private financial markets to reconcile the policy divergence. “If you don’t have that many assets and you want to borrow, you’ll be hurt”.

The New York Fed has a huge team of traders, who would sell Treasuries to banks, in an effort to steer the FFR higher.

The rate on a 30-year fixed mortgage was 3.94 percent last month, up from 3.67 percent in January. That would boost the monthly cost of a typical $225,000 mortgage by $26 to $1,454 – not enough to deter most buyers.

It has not budged since then, as the climb back to firm growth has been much slower than expected. In other words, over time the economy cycles like a sine curve. “It won’t collapse the sale of housing”.

Futures in crude oil reached a low of seven years while the euro which is expected to fall against the USA dollar as the monetary policy tightens, rallied after many had covered those particular bets. Average card rates are 12 percent to 24 percent.

Anticipation of a quarter-percentage-point increase in the Fed’s rate already has pushed up the prime money-market rate from 0.03% to 0.14% over the past six weeks, he says.

“The concern here is that in the wake of a historical long period of stable and low interest rates, consumers may be accumulating revolving balances without an understanding that the price of doing so, even on existing balances, may well increase in the future”, the report said. You won’t even notice it. But the significance is, ‘What could be the cumulative effect if the Fed raised rates a series of times over the next couple years?’

Are they right? We will know when the Fed chair Janet Yellen makes the announcement in a few hours from now.

Consumers account for nearly one-fourth of the nation’s $59 trillion total debt load, according to the Federal Reserve. As the market attempts to price in a rate increase, investors may soon shift gears to pricing in Federal Reserve guidance on interest rates in 2016.

“I think it’s more likely than not that the Fed will hike rates this week”, said certified financial planner Michael Conway, CEO of Conway Wealth Group. They’ll do that whether interest rates are 4 percent or 4.5 percent. For example, in her Economic Club address, Yellen conceded the need to begin raising rates now, and so limit the need for any sudden imposition of greater restraint later. But that appears unlikely, given the flak that the Fed is already facing regarding its monetary policy decision.