What will happen if Fed raises its rates?

It has been nine years since the Fed raised the rate, an indication of just how long it has taken to recover from the collapse of the over-inflated mortgage market, a time when home loans, which borrowers had no ability to repay, were packaged and sold to investors.

After months of anguished speculation, global investors, small businesses, politicians and economic wonks are bracing for impact as the U.S. Federal Reserve appears determined this week to raise a key short-term interest rate target for the first time since it flattened borrowing costs after the global financial system melted down in 2008.

24% of the economists expect two rate hikes in 2016, 25 basis points each, 39% expects three rise and 30% expects four rise, rest 7% divided over one and five.

Mortgage rates aren’t directly pegged to the benchmark Fed rate.

During the long wait in anticipation of a rate hike, Asian markets have gone on a roller-coaster ride, most notably in September when the Fed unexpectedly held off on raising rates.

The FOMC meets over Tuesday and Wednesday and will announce its decision at 2 pm (1900 GMT) Wednesday, along with FOMC members projections for growth, inflation and interest rates over the next two years. Prices were high, at least in part due to easy monetary policy around the globe, which prompted more production, which increased supply, which forced prices down.

If you put money in your savings account or have certificates of deposit, you earned nearly zero interest in the last seven years.

That helped prompt further stimulus measures from the European Central Bank last week, one of 43 central banks which in contrast to the Fed have loosened monetary policy this year to help spur inflation and growth.

Most commodities, in fact, are at their lows.

Investors have been seeing volatility in the stock market but could eventually see higher returns, experts say. But what that analysis may have missed is that interest rates historically are most closely tied to inflation.

With the job market all but fully healthy, the central bank is ready to begin lifting rates toward normal levels.

With the jobless rate at 5 per cent, half its 2009 level, Yellen was confident enough to warn lawmakers on December 3 that inflation could rise “significantly” above the Fed’s 2 per cent target if rate-setters aren’t ahead of the curve. Estimates imply Fed holdings have broadly reduced yields by 0.75% – 1.25%.

In a 2012 speech, Charles Evans, head of the Federal Reserve Bank of Chicago, warned of a “natural tendency” for policymakers to want to undo super-low rates.

If it happens Wednesday, it will mark the Fed’s first rate increase since June 29, 2006. At year’s end, the quits rate is still 9.2 percent lower than it was before the recession, indicating that many workers are stuck in jobs that they would leave if they could.

“The rate increase is likely to be tiny, and I’m not sure it’s going to have an effect that will shock and awe anybody”, said James Chessen, chief economist at the American Bankers Assn. If the Fed proceeds, it will be the first time such hike in nearly a decade, and the move will usher in a new era of rising rates, which have hovered near zero since 2008.

Also some investors are pulling their money out of global investments parking it in the USA – higher rates make assets priced in dollars more attractive. There is, of course, the worry that if the unemployment rate falls the risk of an inflationary trend could develop with a tightening labour market, and the subsequent wage price escalation that follows.

Fed tightening will likely lead to weakness in the US dollar.