US rate hike expected as Fed meeting looms

Any signs of store closures in the United Kingdom or the partnership with Sprint Corp in the U.S. will also likely catch the eye.

It isn’t the message investors want to hear.

Yellen made clear at the beginning of this month that she believes that longstanding arguments against an increase – inflation is absent and the jobs market still shows weakness – will dissolve through next year.

A move has been well-flagged for months now by Fed Chair Janet Yellen and others on her team.

Hélène Rey, a professor at the London Business School, wrote an influential paper in 2013 on the cycle of financial firms borrowing money at low rates to invest in countries such as Malaysia, Turkey and Brazil – only to snatch the investments away when interest rates rise.

“The Fed is going to package this announcement in a nice holiday box with a pretty ribbon on top”, said Sung Won Sohn, an economics professor at California State University, Channel Islands. That’s a very small move.

One of the main reasons why the dollar tends to be performs poorly after the first hike is because its oftentimes accompanied by a dovish statement. That could rattle the markets and even shake consumer confidence at a particularly dicey time, as holiday spending is key for the overall economy.

The FOMC meets over Tuesday and Wednesday and will announce its decision at 2.00pm (3.00am Singapore time Thursday) on Wednesday, along with FOMC members projections for growth, inflation and interest rates over the next two years.

America’s central bank looks set to raise interest rates today seven years after they were slashed to near-zero during the financial crisis. On Wednesday, it’s expected to modestly raise that range to between 0.25 percent and 0.5 percent.

The third shift in focus would be how far up the Fed is able to raise rates. A recent jobs report indicates that unemployment is steadily decreasing, prompting the Fed to remove what has essentially worked as an economic stimulus and move to a more neutral stance, assuming that the recent momentum will continue.

The consumer-price index, which measures what Americans pay for everything from breakfast cereal to college tuition, was unchanged in November after rising a seasonally adjusted 0.2% in October, the Labor Department said Tuesday.

Yet even core inflation, which strips out volatile food and energy costs, has hovered below the central bank’s annual 2 percent target, it pointed out.

“The Fed is not trying to slow down a fast-growing economy or dampen runaway inflation”, Sam Stovall, equity strategist at S&P Capital IQ.

Analysts say that could mean quarter-point increases every three months or so over the next three years that could lead to a 3.375 percent benchmark rate by the end of 2018. The central bank has also been under pressure for years from conservatives to tighten up its monetary policy, as Republicans in Congress and elsewhere have argued the Fed’s efforts to stimulate the economy have been ineffective and risk damaging inflation down the road.