Here’s how a Fed rate hike will impact your student loans

In the minutes of its meeting this month, the Monetary Policy Committee (MPC) weighed “robust growth” in domestic spending against weak overseas demand, and said eight of the nine panel members voted to leave the benchmark at 0.5 per cent this month.

BoE Governor Mark Carney’s suggestion to the United Kingdom parliamentary select committee last month that a tightening of domestic monetary policy remains “a long way off” has held back the Pound during recent weeks.

The US bank’s benchmark federal funds rate has been locked near zero for almost seven years.

In the minutes from their latest policy meeting, rate-setters focused on a renewed fall in global oil prices and slower rises in wages. That said, if a member of the MPC were to join McCafferty in voting for a rate hike, the two notable candidates would be Weale or Forbes with Weale having a more hawkish stance historically and Forbes also suggesting in recent months that she has hawkish tendencies.

Meanwhile, the European Central Bank last week announced a cut to overnight deposit rates from minus 0.2% to minus 0.3% and extended a 60 billion euro (£43 billion) stimulus programme by six months.

Markets were more influenced by offshore factors, with the won down half a per cent at 1,173.2 to the dollar while December futures on three-year treasury bonds ticked 0.03 basis points lower at 109.30 as of 0107 GMT. The country’s household debt is expected to top 1,200 trillion won (1.02 trillion USA dollars) within this year. Despite lower unemployment, nominal pay growth appears to have flattened off recently.

“The pound continues to be threatened by the Bank of England’s clear reluctance to begin raising United Kingdom interest rates, while other signs of sluggish economic growth and static inflation are also reducing any pressure on the BoE to act”, said FXTM research analyst Lukman Otunuga. These developments may “increase the likelihood that headline inflation rates would remain subdued”, according to the minutes.

The BCC believes rates will rise in the third quarter of 2016, although it stresses that global economic woes could push it back further, while Investec Economists are pencilling in a rise in the second quarter of next year.

Since markets always try and anticipate the move of the Fed accordingly, some immediate effects of this rate hike on regular borrowers will be dampened during the short run. Brazil is experiencing its worst recession in decades and previous rate hikes have not prevented a rise in inflation, which in October reached a 12-year high of 9.93%.