Here’s What The Fed’s Hiked Interest Rate Means

What rate exactly is the Federal Reserve changing and what type of direct impact does it have? They are not there yet.

The central bank on Wednesday raised rates by a quarter point to 0.75-1.00 percent, responding to the continued strength in the labor market and a pick up in inflation.

There had been fears that the Fed was going to move faster in raising rates, but those concerns were eased after Fed chair Janet Yellen said any future tightening would be more gradual.

“The prediction for three hikes in 2017 in the Federal Open Market Committees (FOMC) December 2016 Summary of Economic Projections was initially met with some scepticism in financial markets”.

ASB chief economist Nick Tuffley agreed rates were set to rise.

Better job, higher pay?

A prior Reuters poll conducted on February 3 showed 14 primary dealers surveyed say they expected no rate hike in March with 12 of them anticipating such a move by the end of the second quarter.

“We continue to expect that the ongoing strength of the economy will warrant gradual increases in the federal funds rate, to achieve and maintain our objectives”, Yellen says. Yet the USA expansion is now nearly eight years old, the labor market is tight, and the unemployment rate is near a nine-year low of 4.7 percent.

Fed’s preferred inflation measure, the personal consumption expenditures price index, is expected to hold at 1.9 percent this year, and 2.0 percent in 2018, which is the Fed’s target.

What’s more, wages are already rising slowly.

City Developments jumped 2.6 per cent, or 27 cents, to $10.50, UOL Group rose 2.2 per cent, or 15 cents, to $6.98, and CapitaLand gained 2.2 per cent, or eight cents, to $3.73. You might want to act sooner rather than later.

Until that happens, one should look back at what the decade of low interest rates has done for many countries, including Malaysia, and wonder just for how much longer should we continue with that.

The weaker dollar after the Fed raised rates as expected also helped to make the greenback-denominated crude less expensive for holders of other currencies.

Employers hired 235,000 workers last month, more than the 190,000 forecast among economists polled by Reuters.

A higher interest rate could also lead to higher mortgage rates, but the two aren’t directly connected. Limiting inflation protects the purchasing power of personal savings by keeping the prices of goods from rising too quickly.

“It puts pressure for more variable rate products within the industry rather than fixed rate”, Hickman said.

Right now, the Central Bank is expected to raise rates three times this year, but if its actions become more aggressive, it could bring a sharper upswing in mortgage rates.