U.S. dollar stays strong ahead of Fed meeting

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At the end of the two-day gathering on Wednesday the Fed will also release its latest economic forecasts.

While typical debtors won’t feel a huge impact from this week’s anticipated Fed rate hike, they should anticipate higher interest costs, and possibly a higher pace of inflation, if President-elect Donald Trump succeeds in convincing the Republican-led Congress to pass his raft of tax cuts and infrastructure spending increases. A rate increase this week would be the first since last December and only the second since the 2007-2009 financial crisis.

Inflation, along with unemployment, is part of the dual mandate which guides the Federal Reserve when it sets monetary policy.

Investor sentiment remains both nervous and cautious, especially in Europe where we have seen appetite fall away for risk assets – assets such as stocks, commodities and certain types of bonds where there is a lot of price volatility.

Markets have priced in a near 100 per cent chance of a quarter-point increase.

Will they signal that they expect to raise rates very gradually in the coming year?

Hank Smith, chief investment officer at Haverford Trust, believes there is no reason to be at emergency interest rates, given recent economic data. Economists will be diving into the details of the Fed’s statement to see what the future might have in store. Every word will be dissected for clues about the Fed’s pace of rate hikes going forward.

The projection that the FED will create a déjà vu effect on the market by following its steps in 2015 was based on the weak performance of the country’s economy in half of the year, the disappointing employment data in May, the Brexit referendum in the United Kingdom, and the USA presidential elections in November.

U.S. Treasury yields have recently spiked on expectations that the Trump administration will enact policies to spark growth and inflation. Growth in industrial production accelerated to 6.2 percent over a year earlier from October’s 6.1 percent.

Consumers’ ages may determine whether the interest rate increase is good or bad news, while those considering buying a house may be pushed into making a decision quickly. Each official’s expectation is represented as a dot on the rate chart.

And that means four rate hikes in 2017, Michele said.

The real focus on Wednesday will be the language that accompanies the rate announcement.

Like many analysts, Nigar projected two or three Fed interest rate hikes next year, while Rick forecasted “three or more”.

In addition, Trump can begin putting his stamp on the Fed immediately by filling two vacancies on its seven-member board. The report notes Trump has criticized Fed Chair Janet Yellen’s leadership and the Fed’s dovish stance.

US equities have rallied and bond markets slumped since Mr. Trump’s November 8 election win as investors bet his campaign promises for tax cuts and infrastructure investment will boost growth and lift inflation. Investors appear to be betting that the economy will strengthen along with corporate profits. Rate hike would not be a surprise and indicate Federal Reserve’s doubt over the economy; it can create a panic.

Yellen is expected to provide a more upbeat assessment of the US economy.

“At this juncture, it is premature to reach firm conclusions about what will likely occur”, William Dudley, president of the New York Fed, said in a recent speech.