America set to hike rates Wednesday – and it will affect YOU

During the next four months, it dropped to 5.7 percent.

Since the onset of the global financial crisis, the bellwether “federal funds rate” has been kept at rock bottom levels – between 0 and 0.25%.

Could mortgage rates follow the same course this time around?

With this thought in mind, here’s a look at the federal funds rate overlaid with politics. It’s hard to predict how the market will react to such a momentous change.

The interest rate in focus is the federal funds rate, which banks charge when lending to other banks.

It could trigger volatility in stock and bond markets, which are already on a roller coaster ride. “People should expect prices of bonds and equities to start to gyrate”.

Some market-watchers also say the market won’t be moved as much by what the Fed does this week as by what it says about rate hikes in the future. Either way, interest rates are more than just highly accommodative in the current economic and interest rate climate. It means lenders earn more interest, because borrowers are paying it over longer periods.

The Federal Reserve is set on raising interest rates next week.

“This is the first rate of multiple ones that will be coming up over the next couple of years”. Interest rates have already tightened, and the USA dollar has strengthened, in expectation.

Wake points out that often what people expect determines what they do. The repo rate is the rate at which the central bank of any country lends money to commercial banks.

The consultancy added that the impending rise comes against a largely favourable economic backdrop and has been priced in by traders. For somebody looking at a $25,000 vehicle loan with a quarter-point rate increase, it’s $3 per month.

It’s that time again: Will they or won’t they?

Second, on the objective of price stability, while the core personal consumption expenditure (PCE) inflation remains below Fed’s target of 2%, Yellen’s estimate of underlying inflation, stripping out the impact of imported price deflation, is higher at 1.5-1.75%, which is marginally lower than its target. Today, the USA economy is far different than it was in 2008, when the Fed slashed rates and unemployment neared 10 percent.

“During a financial crisis you might actually amplify the crisis by MMFs pushing all their cash towards [the safe haven of] RRP, in effect defunding everyone else”, he said. And if you can’t get wage increases, it’s tough to have inflation. Reducing interest rates is a primary tool when the economy slows. There’s not even a whisper of inflation.

Interest income, which retirees particularly rely on, has been decimated for years by these near-zero interest rates.

“The Fed is not trying to slow down a fast-growing economy or dampen runaway inflation”, Sam Stovall, equity strategist at S&P Capital IQ.

Stock market: With the benchmark rate so low for so long, the market has been the only growth game in town for many investors. Plosser would have preferred to raise rates “a year ago” but was glad that the Fed chief facilitated the debate over liftoff. How could the Fed’s decision affect markets and politics as the world moves into 2016? Officials have emphasized that it will move gradually to test the response of financial markets and the economy, both at home and around the world.

Traditionally, the Fed increases the amount of securities it sells to banks.

“The case against the Fed is straightforward: In an attempt to jumpstart the economy out of recession, Greenspan slashed the federal funds target from 6.5% in January 2001 down to a ridiculous 1% by June 2003”.

Despite those concerns, Fratantoni is optimistic about next year’s real estate market.

“There’s no question rates should be higher”, said Mark Vitner, senior economist for Wells Fargo. “But at this point, it’s going to be just a very modest headwind”. On the other hand, the economic logic of the “lag” cuts two ways, requiring caution in tightening as well, lest the Federal Reserve err in the direction of too much restraint, which it can not reverse later. The risk at the highest and lowest levels was all but ignored. But in the age of Donald Trump, where irrational and unsafe hatred of the “other” has been so viciously released, I’m wondering if I’ve been too narrow in my thinking about the benefits of full employment. It’s not going to five [percent] and it’s not going to three [percent].