Investors Bracing for Volatile Reaction to Fed Rate Announcement

It’s hard to know which would be worse for USA equity investors right now: a contraction in valuations, or if stocks were left to rely on earnings growth to push them higher.

Others think the tightening will follow a course similar to how the Fed has raised rates in the past, boosting its target for the fed funds rate, which banks pay each other for loans, by a full percentage point over the next year in increments of a quarter-point at four different meetings.

Forecast-beating numbers on Saturday showing Chinese industrial output growth picked up to a five-month high of 6.2 percent in November signaled that stimulus measures from Beijing may be steadying the world’s second-largest economy. That document will give the interest on excess reserve rate and overnight reverse-repurchase rate and cap, laying out the strategy for raising rates into the Fed’s target range starting the day after the FOMC meeting.

“It’s nearly going to create more volatility if the Fed does not raise the rate, as a hike is the expectation”, he says.

The Korea Chamber of Commerce & Industry said on December 13 that Korea is predicted to be less affected by an interest rate hike by the Fed, whereas Turkey, South Africa, Malaysia and Argentina are likely to be particularly vulnerable to the consequences.

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%. When mortgage rates were at record lows during the financial crisis, nobody wanted to buy a house because the economy stunk [so] I don’t have this concern that it’ll put a dent in housing.

For now, the Fed’s preferred inflation gauge has risen a scant 0.2 percent over the past 12 months.

It will be the first rate hike in almost 10 years: This will be the Fed’s first rate increase since June 2006. “For example, there is a low risk of a disorderly reaction should investors abruptly adjust their expectations for yields”, it said.

China’s wobble has been a major uncertainty for the global outlook, so better fixed-asset investment and retail sales growth last month should offer investors and policymakers some reassurance. Savers, hoping to collect more interest on their bank accounts, are likely to be disappointed, he added.

OCBC Bank economist Wellian Wiranto said Asia might soon have to grapple with “a potential new reality of scarcer liquidity, higher rates and a stronger dollar in the post-lift-off world, which would continue to make the operating environment that much tougher”.

Based on the current price action, it looks as if the rate hike has been fully-priced into the market. The latest figure was 1.3% core inflation for the year ended October 31. They’re sitting on a lot of deposits already, so they don’t necessarily need to raise rates and bring more in. “This is not one and done”, said Lawrence Yun, chief economist for the National Association of Realtors. On that $200,000 loan, it would mean $118.81 more per month, $1,425.72 more per year and $42,774 more over the life of the loan.

In the last 45 years, there were 5 Fed tightening cycles that began when the European Central Bank was easing.

In this piece, we take up from where in equities article, we concluded that path of USA rate hike more important than the first rate hike and discuss the probable rate hike path. Higher interest rates could require more of a down payment and more of buyer’s income toward a monthly payment. Barring something completely unforeseen, we can expect that first move to come on Wednesday the 16th.