Dow rallies as rate hike party starts early

Anyone with a portfolio knows a loss is a loss when you are staring at it and, with 10-year notes at 2.15%, heading to just 3% will knock the value of $2Tn worth of corporate bonds down by 10-20% on the resale market. Now unemployment is at 5 percent.

“I think it is quite possible that the conditions the committee has established to begin to normalize monetary policy could soon be satisfied”. We’re talking $200-400Bn in paper losses on somebody’s balance sheet!

On the face of this both of these targets seem purely United States related, but tinkering with one part of the world’s economy will mean ripples felt in other parts.

That hope that the Fed will stress it plans a softly softly approach was helping soothe jittery markets that have been roiled again over the last couple of weeks by a fresh slump in oil prices and fall in China’s increasingly influential yuan. When the Fed held off on raising rates in September, the shaky global economy was a key reason.

The problem is that the Fed is looking at economic inflation indicators rather than “professional” inflation forecasters to see if inflation is really on the horizon.

A leading bullion association in India is offering free membership to jewellers across cities and small towns ahead of a planned launch of the country’s first physical gold exchange, a move aimed at standardising prices and improving transparency.

However, as we’ve witnessed in the USA, mortgage rates will start to creep up long before an official rate rise is communicated.

While the markets have been expecting the hike for months, emerging market currencies don’t look to have prepared themselves, and many are falling back against the dollar on Wednesday.

There are 10 Fed members who now vote on what interest rates should be.

By year’s end, the European Central Bank, now led by Mario Draghi, changed course as the rate hikes and export-sapping appreciation of the euro pushed the economy back into recession.

However, supporters like Hoffman point out that the first hike is hardly more than a “baby step” and that further increases, as Yellen is expected to stress, will depend on how the economy continues to perform. “But if the Fed capitulates on the four hikes, that would be seen as a dovish hike”. This is half its 2009 peak and close to what economists term full employment – the maximum rate of employment before which inflationary pressure kicks in.

“US interest rates are also important with respect to the value of the United States dollar, in which most commodities are priced”.

Export and import prices came in today. However, such warning signs are being dismissed in hopes that “this time is different” and “services” can keep the U.S.an island of prosperity in the midst of a global recessionary storm. The problem is the word “average”.

In a Reuters poll of more than 90 economists taken between December 4 and 9, the probability that the Fed will raise rates rose to 90 percent.

The Fed has said it would raise rates when it saw a sustained recovery in the economy. The Federal Reserve should have raised rates a long time ago. “Sound too constructive and the market could interpret the Fed as being late in the tightening cycle”.

It’s not that rates don’t need to rise.

For investors, there is little “reward” in the current environment for taking on excess exposure to risk assets.