With Fed Expected to Hike, Attention Turns to What It Says

Following a two-day meeting of the Federal Open Market Committee (FOMC), the Federal Reserve is expected to announce an increase in the target range for its federal funds rate to between 0.5% and 0.75% later tomorrow, up from 0.25% to 0.5%. US growth has been uneven but as last year there is case for optimism around a steadier pace of recovery next year that surprisingly is getting a boost from the plans from president-elect Donald Trump. A more cautious outlook, by contrast, would signal that the central bank expects to further raise rates only incrementally.

Bullion’s descent since the presidential election has been choppy, as several recoveries have fallen flat on a surging dollar and growing rate-hike expectations. A rate increase this week would be the first since last December and only the second since the 2007-2009 financial crisis.

The prospect of more aggressive rate hikes is also lifting the United States dollar, which has appreciated 2.6 per cent against the Singdollar since the U.S. election.

“All this to say that there is little doubt that fiscal measures will play a more prominent role in the economy in the future, but this does not imply that the central bank will be more aggressive with interest rates right off the mark”, Caranci says.

Markets have been reacting to expected tax cuts and fiscal stimulus that Mr Trump may roll out after his inauguration in January but analysts pointed out that there is scant details on the policies.

It will fall to Yellen to keep the lid on inflation. “The two could spark a fresh selloff in gold to the $US1,140-level we are targeting for sometime in December”, INTL FCStone analyst Edward Meir said in a note.

February gold futures declined $6.80, or 0.6%, to settle at $1,159.00 a troy ounce at 4:59 pm ET. Since then, the interest rates have remained unchanged. Like other economists, they’re trying to figure out what 2017 will bring.

If their own public comments are any clue, that already has Fed officials squirming. In January, the dot plot showed an expectation for four, and that was cut to two in June. Interest rates won’t spike, even if we have seen the bottom, and the 10 year will grow but is still in demand because of the performance of other global sovereign debt. But he thinks the Fed may wait awhile before telegraphing the next hike, given “lots of scenarios and lots of unknowns”. The Consumer Price Index has gained 1.6% the 12 months ended October, which would mean a normal fed funds rate would be 3.1%.

U.S. Federal Reserve chair Janet Yellen. Concerns with wage inflation are another reason for Federal Reserve not to raise rates. Is it time to worry that rising rates will hurt the stock market? “The risk would be if Mr. Trump started to draw attention to the Fed and got more people on board for making change”.

The Fed chair may be less hesitant to reject Republican proposals in Congress to rein in the Fed’s authority and independence.

A lower interest rate is indicative of a fragile economy.

Yellen has criticized all those proposals, arguing that restricting the Fed’s political independence would be a serious error, with possibly unsafe consequences for the economy.

“At this juncture, it is premature to reach firm conclusions”, New York Fed President William Dudley said last week. During the campaign, he called Yellen “highly political”.

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Older, more financially-established Americans should prepare to celebrate the Fed’s decision, according to Steve Rick, the chief economist at the insurance and financial services company CUNA Mutual Group.