Fed rate hike impacts consumers’ credit cards, loans

The event the world has been awaiting, preparing and speculating for is finally approaching – meeting by US Federal Reserve, in which US interest rates will finally rise from their zero bound. Those expectations are now focused not on whether or not there will be a rate hike, but on what language regarding the future will accompany it. There seems to be a feeling that the Fed could indicate that this is a “one-off” move with no timetable outlined to even consider further hikes.

Often lost in the concern about spurring the economy have been those who depend on a steady rate of return and minimal risk.

Given the economy’s consistently strong job creation, a respectable uptick in employees’ annual wages and modest but notable inflationary pressures – this month is looking like as good a time as any for a rate hike, economists say. He expects the Fed’s benchmark rate to end 2016 near 2 percent, twice the level Swonk foresees. Since then, the cost of borrowing to purchase a vehicle has been very low and has contributed to a surge in auto sales. That’s a number not seen since 2006, a few years before the 2008 financial crisis.

For another, “Nobody believes the Fed will move up rates very quickly”, said University of Georgia economist Jeff Humphreys. It’s not expected to be a punishingly high difference for many buyers, but for those with lower incomes it might be noticeable.

Business investment: Companies small and large have to borrow to buy equipment, hire more employees, and keep the lights on and workers paid when there are gaps in cash flow.

Also some investors are pulling their money out of global investments and parking it in the USA – higher rates make assets priced in dollars more attractive.

The “liftoff” on rates will also make home purchases more expensive.

The most immediate impact on consumers would be on credit card statements. The annual growth of its preferred inflation gauge has averaged 0.25 percent this year.

“Since 1997, Korea’s foreign exchange reserves have increased by more than 14-fold and its emergency response capabilities have shown a significant improvement as well”, it remarked, adding, “When the Fed mentioned the possibility of tapering two years ago, foreign investors withdrew their money mainly from Thailand, Indonesia and the like instead of Korea”. That increase in production was generally planned and began previous year, when commodity prices were high and is, in a theoretical sense, a wonderful example of simple supply and demand in action.

According to latest projections available (September…latest will be released in December), one policymaker (probably Evans) expect rate to stay at zero bound, two at 1%, four at 1.25%, two at 1.5%, three at 1.75%, one at 2%, two at 2.25%, one at 2.5%, one at 3% (probably Lacker). We’ve had a lot of economic fits and starts just to get to this first rate hike.

The October and November US employment reports bolstered confidence in the trajectory of the economy, with the jobless rate down to 5%.

Ahead of the Fed meeting we’ll see U.S. inflation for November, which is expected to fall slightly to 1.9% year-on-year and 0.2% monthly. His models put chances of a rebound in emerging-market currencies at 33 percent after a “dovish” Fed move.

The Fed is unlikely to lose control entirely, but how the process will unfold in these uncertain waters is an unknown. He says many financial institutions will be slow to reward depositors with higher rates. But it sets a direction other rates generally follow.

Yes, the Federal Reserve has telegraphed the expectation of a first rate hike to come this month.

Worse still, rising rates will penalise their debt financing conditions and push down their currencies, hitting export earnings.

“US monetary policy poses each time a problem in Brazil”.

CORRECTION: An earlier version of this story gave the wrong year for the last Fed rate hike.