Gold Flatlines Ahead Of Presumed Fed Rate Hike

The Federal Reserve increases or decreases interest rates as a benchmark for financial institutions.

On that, pretty much everyone agrees. Jan Hatzius of Goldman Sachs expects one rate hike about every three months next year.

Such emerging markets (EMs) include Brazil, Russia, Turkey and to some extent South Africa, where severe domestic challenges have contributed to exchange rate and financial market instability, the statement read.

It isn’t the message investors want to hear. “Most of the other fundamentals are suggesting a very strong housing market in the year ahead”. Output is well past its previous peak, unemployment is down to 5 per cent and while average house prices have yet to pass their past peak, they are on track to do so within the next 18 months. Now it’s $4.2tr, and the Fed is the largest single investor in mortgage-backed securities in the world, holding $1.7tr in MBS.

One factor that could keep the pace of hikes gradual is the absence of inflation pressures.

“Today’s report had no significant implications for our near-term inflation outlook or Fed call”, said BNP Paribas’ Laura Rosner.

A rate hike with the euro/dollar at 1.1 rather than parity makes Yellen’s job relatively easier as the strength of the greenback is not the top concern. N Bhanumurthy, professor at the National Institute of Public Finance and Policy, says, “I believe it would be good news for India because it would imply that the U.S. economy is growing and as such, its demand for our products, especially service exports, will go up in the medium to long term”.

But Gary Harloff, founder and owner of Harloff Capital Management in Westlake, Ohio, predicts a 5 percent gain in the S&P 500 and a decline in the bond market this week, if the Fed takes action. British homeowners in particular have enjoyed many years of cheap variable-rate mortgages and perhaps haven’t realised how even very small rises in interest rates can have quite dramatic effects on monthly repayments.

Third, and the decision I think is most likely to play out, will be a hike accompanied by overly dovish comments, and excessive cheerleading about how positive this speaks of our economy.

Jennifer Lee, senior economist at BMO Capital Economics, said the low overall inflation would not stop the Fed from starting to raise interest rates, given the long-held view that if the Fed waits to start raising interest rates until inflation becomes a problem, then it will have waited too long.

Yes. “The Federal Open Market Committee is “expected to raise the federal funds target … by 0.25 percentage point, from a range of 0-0.25 percent, to a range of 0.25-0.50 percent”.

Platinum was up 0.5 percent at $856.20 an ounce, while palladium was up 3.1 percent at $561.48 an ounce.

The dollar climbed by more than 0.6pc against the pound on Tuesday, after inflation data seemed to secure the case for interest rates to rise.

And, yes, there is still a strategist or two, like Steven Ricchiuto of Mizuho Securities USA, who think the Fed will not raise rates Wednesday at all.

“If the next recession comes in the next couple of years, it’s hard to imagine rates being high enough that the Fed will be able to avoid returning to zero again with risks that a fourth round of quantitative easing will be needed”, Mr Reid said. Although the Fed typically moves in tiny 0.25 percent increments, credit card spending is surprisingly responsive to interest rates. “In the months to come, the Fed should focus on the policy goal that real wages should rise with productivity”.

The oil price has descended to fresh cyclical lows, and China is advancing the devaluation of its currency. “And this would be much more serious than a modest uptick in inflation, because it’s not at all clear what the Fed could do to fix its mistake”.