Hiring trends to be litmus for rate hike effects

U.S. stock markets once reacted violently to any suggestion that rates might rise. Consumers and businesses could now face modestly higher rates on some loans.

Likely after a few rate hikes are out of the way next year, the Fed will have to decide how to drain its portfolio of Treasury and mortgage bonds, either by allowing them to run off naturally or by selling outright.

The Federal Reserve is keeping USA interest rates at record lows in the face of threats from a weak global economy, persistently low inflation, and unstable financial markets. It’s just amusing that Federal Reserve officials would choose to raise rates now, when prices are falling so quickly. The jobless rate is now at a seven-year low of 5 percent, close to the Fed’s target for full employment.

They increased their median projection for economic growth next year to 2.4 percent, up from 2.3 percent in their prior September projections.

The Fed’s decision to raise rates is in many ways a healthy sign: It’s a vote of confidence that the economy, 6½ years after the Great Recession officially ended, can finally withstand higher borrowing costs and keep growing at an acceptable pace.

Some traders say a rate hike is already priced into gold, and any indications from the Fed that further rate hikes would be slow and gradual could send the metal higher after the Fed meeting.

The Fed put rates near zero in December 2008 to boost the economy and stimulate the collapsed housing market.

Some analysts expect the Fed to raise rates at every other meeting in 2016, for a total of four quarter-point moves.

Some U.K. energy stocks held higher Wednesday even though oil prices were pushed back into the red.

“These things are good for the consumer and will easily outweigh the impact of a rate increase”, said Chris Christopher, an economist at forecasting firm IHS Global Insight.

Markets set a positive stage for the Fed’s potentially historic turn as US stock futures rose ahead of the market open on Wednesday and bond markets and the dollar were steady.

“I think the Fed would be very loathe to stop raising rates or reverse course, and it would take a very severe downtown for them to change their minds”, said da Costa. However some expectations (though small) are of lower than 25 basis points, which we at FxWirePro, strongly disagree with.

Inflation hawks: Critics fear the Fed has kept interest rates unnaturally low for too long.

“The 2.4% number showed that although we have seen some strong wage growth of late, earnings are still not moving consistently enough in the right direction, yet again reaffirming the Bank of England’s stance that we are not ready for rate rises in the United Kingdom”, said James Hughes, chief market analyst at GKFX, in a note.