Most bets are that the U.S. central bank will increase the benchmark federal funds rate for the first time in almost a decade, signaling confidence in American economic growth even as the rest of the world sags.
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“The US economy should cope well with a less expansionary approach to monetary policy, as, unlike in the last economic cycle, consumers are well prepared for rising interest rates thanks to much lower debt”, said Jorg Kramer, chief economist at Commerzbank.
The FOMC’s announcement will be at 2 p.m. EST on December 16.
He said the optimistic market reaction to the jobs situation was not due to expectations the United States economy would grow above 2 per cent but probably because the predicted federal funds rate would be less than 1.4 per cent in two years’ time as implied by the 24 months Fed futures. The Fed has said it does not intend to raise rates once, and that the path of hikes would be gradual.
Don’t try to outsmart the market, said Swedroe, who also is director of research for the BAM Alliance of financial advisers.
Market data revealed that investors believe policymakers are now ready to act, believing there is a 74pc chance that the Fed will raises its rates on Wednesday. “On Friday, we saw some kind of a pause or a little selling”.
Next week is shaping up to be very interesting for market participants and close attention should be paid to crude oil and the U.S. dollar. The S&P BSE Sensex broke below 25,000 but closed slightly higher, while the Nifty50 breached 7,600 on the downside. Blue-chip names like Bharti Airtel, Dr Reddy’s Laboratories, ICICI Bank, L&T, Punjab National Bank, ICICI Bank, Bosch and Axis Bank have all slipped into their fresh 52-week lows.
Janet Yellen’s U.S. Federal Reserve shouldn’t raise interest rates next week, because doing so could jeopardize economic growth and worsen inequality, said Nobel laureate Eric Maskin.
“Emerging markets have had a lot of time to prepare”, Maskin said.
By moving slowly, the Fed would allow companies to plan for higher interest rates down the road, including by deciding to borrow now instead of in a year. I think right now what investors are looking for us how the Fed will actually communicate the strategy.
Australia said employment data showed a 71,400 jobs gain in November, compared to a drop of 10,000 jobs seen at a participation rate of 65.3%, above the 65% expected, for an unemployment rate of 5.8%, well below the 6% expected. The value of the fund declines with any interest rate hike because the fund becomes less attractive to investors. This is evident from the constant selling witnessed in equity markets not just in India, but across the globe. Foreigners keep buying them, because rates here are already higher than in Europe and Japan.
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The Fed believes there are channels through which a rate increase works, and that is particularly pronounced when it comes to long-lasting, or “durable”, goods like autos. The bigger issue is after that what? “The housing market isn’t doomed by a Fed rate increase, but demand would fall modestly”.
