Interest rates: Why some are already celebrating the hike

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 4.14 percent, with points increasing to 0.45 from 0.43 (including the origination fee) for 80 percent loan-to-value ratio loans.

Economists have expressed concern about the effect of the rate hike on emerging markets, fearing an outflow of funds back to the US after the rate increase.

But it will also mean raising the cost of borrowing for everyone from foreign governments and companies to home and vehicle buyers, while also better rewarding savers on their bank accounts.

The dollar held steady on Wednesday after upbeat United States inflation figures all but sealed the case for a Federal Reserve interest rate hike, analysts said.

Financial markets viewed Wednesday’s expected move as a welcome end to uncertainty, and European stocks rose, building on earlier gains in Asian markets. They see flat inflation and wage stagnation as signals that the economy still has a ways to go before needing a big shift in monetary policy.

Yellen said delaying a first increase too long might later compel the Fed to raise rates faster than it would like. Officials there said the Fed is now in a media blackout and won’t address questions until Friday.

“Second, the output gap appears to be smaller: low productivity and slow growth in the labor force may have dented the economy’s potential, at least in the near term”.

“Most of us would be really shocked if it didn’t happen”, said Joel Naroff, president of Naroff Economic Advisors in Holland, Pa. “But with the Fed, you never say never”.

A smooth liftoff will be up to a team of traders in the New York Fed’s “operations room”, who on Thursday morning will closely monitor key short-term rates to determine whether markets are cooperating. A hike would be “an attempt to recalibrate, not restrain”.

The Fed began a two-day meeting on Tuesday which is widely expected raise the central bank’s target rate by 25 basis points, ending eight years of loose monetary policy. Consider diversifying your fixed income portfolio to include a higher percentage of shorter duration bonds. That could mean significant pain for the dollar and even USA equities which have done quite well during the early stages of previous cycles.

That doesn’t sound good for our wallets, but it’s not all bad news.

Though modest, the Fed’s token first step remains fraught.

While the markets have been expecting the hike for months, emerging market currencies don’t look to have prepared themselves, and many are falling back against the dollar on Wednesday.

“It is a foregone conclusion that the Fed is going to raise rates”, said Kully Samra, a managing director at US focused investment manager Charles Schwab in London.

Speculation on how fast the Fed will hike ranges from between two and four quarter-point increases next year, depending on inflation.

Investors have sent gold down 10 per cent this year in anticipation of higher rates and the dollar strength.