Shares climb on US Fed rate rise expectation

The Fed decision will be released at 2 p.m. Eastern Standard Time.

The US Federal Reserve has increased interest rates by 0.25% after seven years at near zero.

The 0.25-percentage-point increase – to a range of 0.25 percent to 0.5 percent – in the federal funds rate was small but important because it signals the beginning of the end of easy money; the Fed wants to get back to normal after years of fighting economic stagnation with supercheap loans. Every time the fed raises its interest rate, the rate on cards will go up as well.

“I think the Fed will raise rates dramatically less than the Dot plot implies”, says Ben Laidler, global equity strategist at HSBC.

So the spotlight will be on Yellen’s press conference to see how she characterizes the economy’s strength and depicts plans for future rate increases.

The Fed is expected to move gradually on subsequent rate hikes after the initial liftoff, according to a Reuters poll. Yellen has already presided over the end of the Fed’s bond-buying stimulus program.

The Fed has said it would raise rates when it saw a sustained recovery in the economy. Many economists predicted a spiral of falling prices when the US jobless rate soared during the crisis and then thought inflation would rise when unemployment plunged.

In the United Kingdom, the Bank of England is expected to follow the Fed’s path, but not until at least the second quarter of 2016. Richard Trumka, president of the US’s largest union federation, AFL-CIO, urged the Fed to “avoid making a mistake by raising interest rates”.

“The Committee judges that there has been considerable improvement in labour market conditions this year, and it is reasonably confident that inflation will rise over the medium term to its 2 percent objective”, the Fed said in its policy statement, which was adopted unanimously.

The move by the Federal Open Market Committee, which will make the decision, is forecast by a vast majority of economists despite moderate growth and low inflation in the U.S. But nervous investors have been looking for further assurances. The central bank is under political pressure, especially from Vice President Jusuf Kalla, to cut interest rates, which it has maintained at 7.5 percent for nine consecutive months.

The most active gold contract for February delivery fell $1.8, or 0.17 percent, to settle at $1,061.60 per ounce, Xinhua reported. But recent junk bond freakout is still a worry However, stocks could tumble if recent turbulence in financial markets – especially in the junk bond market – causes the Fed to delay a move like it did in September.

After this week’s policy meeting, the Fed is likely to keep a close watch on hiring in the USA construction and manufacturing industries.

The biggest loser right now against the dollar is the South African Rand, which along with jitters about the Fed, is still feeling the impact of South Africa’s president Jacob Zuma sacking two finance ministers in less than a week.