This week: Fed likely to raise rates for first time since 2006

In her recent public appearances, Federal Reserve Board Chair Janet Yellen has strongly indicated rates will start to rise.

The Federal Reserve is widely expected to raise its benchmark interest rate this week for the first time in almost a decade, marking the end of the central bank’s emergency response to the financial crisis but raising new questions about its next steps.

There is a feeling that huge amounts of volatility will follow the Fed announcement, but the market has had so long to digest the idea of slightly higher rates that we expect the reaction to be muted.

Oil producing nations, hit by the price of crude tumbling to seven-year lows, likewise have to deal with the fallout of a USA rates rise and accompanying dollar rise.

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.

“The Fed does not want to have to reverse course in case the economy starts to falter, and the best way to make sure you don’t have to reverse course is to tread very cautiously”, Swonk said. Investors now have more confidence in the economy. In fact, if the committee was to determine that domestic economic conditions and global variables were too fragile to raise rates at this time and again delayed an interest rate hike then Republicans would likely pounce on the opportunity to frame current policies as ineffective, if not damaging.

In September this year, the Fed delayed revising the lending rate by three months to make sure the recovery in the U.S. economy was indeed on strong ground.

There is little agreement in the United States at the moment, but when it comes to the Federal Reserve, many Americans feel their central bank is broken, pointless or at worst bad for the country.

But maybe we shouldn’t be completely blasé about the Fed this week, because there is one area where concern might well be warranted: fixed income, particularly credit markets. Your home equity line of credit that’s 4 percent today could be 6 percent in a couple of years.

Since the Fed has been flagging an imminent rate rise for much of this year, the increase itself should not have much impact. It means lenders earn more interest, because borrowers are paying it over longer periods. The higher interest rates that banks begin collecting from consumers also mean higher returns for people who have savings accounts or certificates of deposit, known as CDs.

In increasing the rate, which we expect the Fed to do, the Fed will likely point to a steady increase in employment numbers, a slight increase in industrial output and adequate retail sales.

First, the Fed is pledging to raise interest rates very gradually.

Mortgage rates aren’t directly pegged to the benchmark Fed rate. But an economy generating more investment and jobs would be better for us all.

For noncash buyers, any significant change in interest rates affects affordability and can knock them out of price ranges or out of the market entirely.

Fratantoni is especially curious about what the Fed will do with its balance sheet. US mutual fund managers have been loading up on credit in search of higher yield, but liquidity in bond markets has been severely constrained, thanks in large part to new regulation created to mitigate systemic risk in the financial system. “It’s how that first move translates into market expectations about the future path of rates”. Financial markets overwhelmingly are betting that the Fed’s rate will be below that at the end of next year. Two Republican candidates for President, Senators Rand Paul and Ted Cruz, have co-sponsored legislation that would audit the Fed and issued support for the more comprehensive Fed Oversight Reform and Modernization (FORM) Act of 2015 that just recently passed the House of Representatives. Mortgage rates and auto loans, among other expenses, are expected to jump up eventually, he says, but it could take months or even years for the changes to take place.