The anomaly behind the Fed’s rate hike

With the Australian economy on a weaker trajectory relative to its potential than the United States economy, the RBA will not be following the Fed into a rate hike. “US Fed rate hike and reference to gradualism are on expected lines”. “If the Fed continues to tighten in 2017 as they now forecast, stock, bond and currency markets will come under pressure”.

“It doesn’t signal that higher Australian interest rates are on the way though”, Mr Oliver said.

Gold fell after the US Federal Reserve ended the zero-interest-rate era and flagged a quartet of increases in 2016, boosting the dollar and keeping bullion on course for a third successive annual drop.

Gold rose more than 1 percent on Friday, recovering from its biggest daily loss in five months as stocks and the dollar retreated, but remained near multi-year lows after the Federal Reserve lifted U.S. interest rates.

Hence, to consolidate the ongoing recovery process of the economy, the Fed made a decision to increase the interest rate.

That second, slower stage of economic growth, he said, will occur as the Fed gradually raises its target interest rate to around 3.25 percent to 3.5 percent, a level he sees as the likely long-run neutral rate.

Goldsmith, who led City National into a merger with Canadian banking giant RBC that closed in November, said the first interest rate increase is not likely to be the last. “We doubt very much they’ll hike four more times in 2016, and expect too see bullion prices strengthen”. Mahoney has some concerns that borrowers accustomed to record low rates for so long may be unprepared for even a slight increase in their monthly payments.

The most hawkish prediction in the poll is that rates would reach 1.75-2.00 percent by the end of next year and the most dovish said the Fed will not hike rates again at all in 2016.

Explaining the Fed’s historic decision, Janet Yellen, the first woman Fed Chair in the bank’s 112-year history, told a press conference that Fed chose to move now because it felt it was on course to hit its goals.

Spot gold was up 1.3 percent at $1,065.30 an ounce at 2:10 p.m. EST (1910 GMT), while US gold futures for February delivery settled up 1.5 percent at $1,065 an ounce.

The rate hike is a small one, but it will affect millions of Americans, including investors, home buyers and savers.