Will Fed Raise the Discount Interest Rate Today?

Before the decision, the market was nearly evenly divided on whether the Monetary Policy Committee (MPC) would decide to hike or not. What really stands between the Fed and rate hike in December is volatility.

Since the dollar will continue to rise until the Fed makes its announcement, it is probable the price of metals will drop significantly.

“We have been conditioned to believe that the BoE will raise rates at a modest pace once the tightening cycle begins”, said Peter Dixon at Commerzbank. The US Federal Reserve’s next meeting to deliberate over the benchmark rate is scheduled over December 15 and 16. If it holds off, there will be some temporary but volatile price swings before they level off. Outflows will see the rand weaken and therefore see the inflation outlook deteriorating. That’s up from 50 per cent at the end of October.

Insiders say the discussion seems to have shifted from the risks of increasing rates to the risks of not doing so, and that a decision to defer firming up policy could be interpreted as signalling a lack of confidence in the United States economy.

First, he asks the question why the Fed will be hiking when there is “only moderate growth in the economy as a whole, stagnation in the industrial sector, and an uncertain global environment?” It will be followed by slow, gradual increases of 25 basis points. That shows that the inflationary outlook is negative and the Sarb has to respond to that.

A rapid United States dollars rally should be expected from a discount hike today – even if the rate is little utilized by banks – but it is uncertain whether such gains would last as the impact on equity markets must also be considered.

Hedge funds and money managers switched to a bearish position in COMEX gold contracts in the shortened week to November 17, as prices fell to the lowest in almost six years, US Commodity Futures Trading Commission data showed on Friday. Of course, Fed speakers recently have been at pains to signal that the moves will be data dependent. In 1994, U.S. economic growth was 2.6 per cent, while in 1999, the USA was growing at a rate of 4.8 per cent, and 4.4 per cent in 2004.

Over the past 20 years, the Fed has raised rates three separate times – in 1994, 1999 and 2004. “Especially as the rate hikes are not necessarily priced in next year, not enough or very few of them”, Baraton said in an investment update call with clients and journalists. Underscoring the policy divergence, European Central Bank President Mario Draghi encouraged speculation that policy makers will ease next week by saying it will do what it must to raise inflation. “That means that the moment the dollar appreciation would be too strong, the Fed would adjust its monetary policy”.