What a Fed rate hike may mean

Some 62 percent don’t expect the Fed’s preferred inflation index, the personal consumption expenditures price index, or PCE, to achieve a third consecutive month of 2 percent or higher readings until 2017 or later.

Market data reveals that investors are all but convinced that the Fed is now ready to act, believing there is a 74pc chance that policymakers will raise rates on Wednesday.

Saturday’s releases followed others last week showing the yearlong slide in imports is moderating and that consumer inflation is picking up.

New Jersey GOP Governor Chris Christie, who is barely registering in the polls, told supporters at a campaign stop in New Hampshire that the Fed should increase interest rates.

The likely move by the Fed and trajectory of future increases are the result of growing confidence in the U.S. economy, tempered by lingering concerns that the expansion remains fragile.

Relax, Fed watchers. Take a deep breath. “Accordingly, the economic backdrop is a favorable one”. “But she’s not going to fly by the seat of her trousers”, Mr Kroszner said.

“There probably will be initial shock because rates will go up in the short term”, Harris said. All six measures of unemployment – including the “headline” rate of 5.0 percent – have fallen to levels at or close to pre-recession levels. “On the contrary, it looked like a classic example of the Misesian theory of the business cycle, in which artificially low interest rates lead to malinvestments, which then require a recession to correct”.

With the rest of the world in a slump, economists Larry Summers and Paul Krugman have warned about raising rates when the risks of a reversal to United States growth remain significant. But it’s a good time to pay attention and start preparing to take the big decisions.

Mr Tuck says the market is pricing in another three hikes in 2016. That could also mute the effect of a rate hike. After seven years of the US Fed cutting rates to zero, we are in an economic era which closely resembles the 1970s era of stagflation and associated with much poorer real economic performance. The nationwide average for a 30-year fixed-rate mortgage was 3.95 percent last week, virtually unchanged from a year ago.

Colbert will be looking for other clues in the “dot chart”, which shows Fed officials’ expectations about future policy. It’s hard to predict how the market will react to such a momentous change.

“There’s a big body of fence-sitters who will come out to buy houses”, he said. For instance, when the Fed sells a Treasury to a bank, it docks that bank’s account with the Fed (just as a bank might charge its customers by docking their current account). Perhaps the larger issue is what to think about when the Fed really wants to make a dent on the interest rate picture and yield curve.

The Bank of England is expected to delay a rise in rates following a string of weak inflation figures. The higher its borrowing costs, the less money a company is likely to spend on growth – and the more likely it could run into trouble paying off debt. While a rise in interest rates across the board doesn’t necessarily improve this spread, it theoretically gives banks more wiggle room when it comes to their net interest margins (NIM), which have been declining steadily in recent years.

The challenging task of steering interest rates upward will fall to an Englishman. Possibly. But keep in mind the Fed hasn’t raised its benchmark rate in almost a decade.

Keeping monetary policy too low, too long could fuel stock market bubbles and other speculation, “and thus undermine financial stability”, she said.

Student debt: Interest rates on new federal student loans – the most common type – are tied to rates in the financial markets and are reset annually for new loans. Central bank officials have tried to convince the public that they do not plan on stair-step increases, emphasizing that they can move more quickly or more slowly, depending on the progress of the recovery.