Fed may be pondering December rate increase

According to the minutes, the United States was able to survive the seesawing global markets without any stress.

NY Fed President William Dudley told the NY conference he does not expect a “huge surprise” or major market reaction to a hike in part because it has been so loudly telegraphed.

And 25 basis points is nothing after seven years of a zero-interest-rate monetary policy that has performed miracles for Wall Street speculators but has left the rest of the U.S. economy still staggering.

Central banks may also want to consider using negative interest rates in a few situations, he said, an option that several central banks in Europe have already tried. The Dow Jones surged more than 240 points. If the Fed hikes rates, it will perhaps be the first rate hike by it in nearly a decade and there are many who have never seen a rate hike in their careers as investment managers – the “rate hike rookies”.

Williams’ reputation as a policy dove made his comments that much more influential, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

Higher U.S. interest rates will attract further fund flows from overseas, increasing demand for the greenback and pushing the currency higher.

Gold futures traded near the lowest since 2010 as investors prepared for the possibility that the Federal Reserve will increase USA interest rates next month, reducing the metal’s appeal as a store of value.

If the economy looked like it was slower, then maybe the committee would change plans a little bit. A particular concern is that employment growth might be tailing off and labour markets haven’t yet fully recovered.

Many investors are wondering what SPDR Gold Shares (NYSEARCA:GLD) will do when the Federal Reserve begins tightening policy in December. They think the Fed should hold off for a bit longer. The same with auto loans which climbed for the 18th straight quarter. Meanwhile, Chairperson Janet Yellen recently stated that the economy is “performing well”, adding that “it could be appropriate” to raise rates. A few economists have highlighted that job creation bounced back strongly in October. The hike would be very positive for the financial sector.

However, higher rates could mean the end of this bull run.

Fed vice-chairman Stanley Fischer recently suggested that the question is whether Asian emerging countries, and in fact the rest of the world, is sufficiently prepared for such a decision. Although he thinks a “boom” time is coming, he doesn’t think the Fed should increase rates at every meeting like it did during that last rate hike cycle from 2004 to 2006. The index had fallen to as low as 98.735 late last week in what was considered a corrective phase following days of strong gains fueled by prospects of tighter US monetary policy.