The era of cheap money isn’t over yet.
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Bank Negara is expected to continue the intervention with daily tenders to mop up excess funds from the market. – wiki picKUALA LUMPUR, Dec 12 – The Malaysian money market is expected to remain stable next week even though the US Federal Reserve (Fed) could execute a rate hike in its upcoming December 15-16 meeting.
Now most economists expect the Fed to increase short-term interest rates for the first time since 2006 as U.S. job growth remains robust and inflation slowly heads closer to the central bank’s target.
That’s why credit card borrowers will pay more – their rates are considered short-term – while 30-year mortgage shoppers might get a pass this week.
“There should be no fireworks as the result of the decision”, said Mark Zandi, chief economist of Moody’s Analytics, a research unit of the ratings agency Moody’s Corp. Even if costs in the near term are rising quickly, that doesn’t mean we’re headed for an extended period of higher inflation. Upward revisions lifted the average monthly job gain for September, October, and November up to 218,000.
“If they raise every other meeting,
0.25 percent, that’s slow”.
The Fed’s vast holdings stem from three rounds of bond purchases, or quantitative easing, which expanded its Treasuries ownership fivefold from the end of 2008.
With a still-soft, sputtering economy, it means the next president will have to deal with economic realities and all of Barack Obama’s economic policies without the Federal Reserve subsidy the president enjoyed for seven years.
While the Federal Reserve’s policy decision is the market’s main focus in coming days, it’s the fall in commodity prices and how that will weigh on the inflation outlook that might drive bonds higher in the euro area.
“They don’t want to risk anything”, said Ozlem Yaylaci, a senior economist with IHS Global Insight in Lexington.
Kelly is ready for the rate hike, and he expects the markets are too. The firm expects the Fed officials to slightly lower their inflation forecast for 2016 and 2017, and trim their estimate of the fed funds rate to 1.3% at the end of next year.
EVP Rick Sharga stated: “A Fed rate increases could actually be good for housing”.
Yellen told the congressional Joint Economic Committee Dec. 3 that the “gradual” pace of interest rate increases was linked to her assumption that the so-called neutral rate – which keeps supply and demand in balance in the economy – is low just now. As the Fed has waited so long to raise rates in the first place, the risks are beginning to be tilted towards the latter.
Interest rates have been heading downwards over the last few quarters, on the back of falling inflation. Given what a sluggish and inequitable economic recovery we are still experiencing, the Fed should think twice before intentionally slowing down the economy. Savers, hoping to collect more interest on their bank accounts, are likely to be disappointed, he added. Borrowing by emerging market economies has more than quadrupled from $4tn (£2.6tn) in 2004 to over $18tn in 2014, much of it in dollars, making them vulnerable to higher USA interest rates.
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“Unfortunately”, he said, “higher rates aren’t going to filter down to savers”.
