Most Investors Say Raising In Interest Rates Won’t Hurt Personal Finances

With an interest rate hike, the Fed dramatically increases theses risks and a potential repeat of the 1980’s Latin America debt crisis.

For those watching USA stock markets, you may notice some volatility this week, just like every other week analysts have speculated about the Fed finally bringing rates back up.

A forecast from the International Energy Agency (IEA) that a glut of crude will persist for another year triggered panic selling among investors, already concerned that an interest rate rise will potentially destabilise the global economy. Meanwhile, Martin Wolf, the Financial Times’ chief economic commentator, thinks the opposite. They make most of their money by collecting customers’ deposits and loaning that money out at higher interest rates.

– When the Fed completes the cycle, the policy rate will be below historical averages.

Notes from the Fed’s October meeting showed most members of the monetary policy committee expected that economic data justifying a first hike in interest rates “could well be met by the time of the next meeting” in December. Liftoff if you must, but after that, it’s critical that you go back to being data-driven. The Fed’s credit “tightening may be small and brief”, because weak foreign economies will depress American exports and slow the economy.

But the economy has to cooperate.

Median projection says, FED to hike rates four times in 2016 of total 100 basis points. The anticipated increase is a tiny 0.25 percentage points. One US dollar can now buy $1.41. Beyond that, we just have to see how the economy responds and what else is going on in the world.

So, not until June meeting, market is pricing with more than 50% probability (57%), that rates will be higher than 0.5%. And second, it’s clear that any rate hike process will be gradual and have a limited ceiling. So buyers have to be aware of what the impact could be down the road.

When there was heightened speculation about an increase in the USA rate in September, Seoul’s main bourse Kospi showed a 1.8 percent rally from Sept. 1 to 17, while the secondary tech-heavy market Kosdaq slid 2.3 percent. That could mean a big difference in monthly payments and could spell trouble for people whose household budgets are tight. “The current situation of the Korean economy is very similar to that of early 2000 when credit bubbles burst due to an investment boom in IT start-ups and the reckless use of credit cards”, Kim said. Making matters worse, the Brazilian Real has plunged during what Goldman Sachs has deemed an “outright depression” enabling debts denominated in United States dollars to become crushing. We’ve essentially been at zero percent short-term interest rates for seven or eight years. What’s the implication for consumer savings here? So the IOER is not a hard floor for interest rates. “But at this point, it’s going to be just a very modest headwind”. It seemed then that the Fed could, with periodic flicks of interest rates, virtually ensure prolonged prosperity. Central bank officials have tried to convince the public that they do not plan on stair-step increases, emphasizing that they can move more quickly or more slowly, depending on the progress of the recovery. And those margins have really been squeezed by low rates.

When rates go up, investors tend to demand more yield for taking on more risk relative to “safer” instruments (like government bonds), and prices tend to go down.

Republicans chastise the bank for its prolonged policy of low interest rates. “To maintain their stability vis-à-vis the dollar they will in turn have to raise their own rates”, thereby losing a growth-boosting monetary tool, explains Garnier. And that’s the sandbox to be playing in. “I don’t expect to see any impact”. But, frankly, I don’t have that same concern. And that better economy is what ultimately gets people to buy houses. Rates peaked at 5.25 percent in mid-2006. However, he said, they shouldn’t be ignored.

However, Ms Yellen argued in a December 2 speech that if the Fed waits too long,”we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals”.