Can we expect more rate hieblgs?
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On Wednesday gold seemed to take the announcement of the first USA interest rate hike in nine years on the chin. However, she qualified her view of the improvements in the United States economy, stressing that “the process of raising interest rates is likely to proceed gradually”.
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“The economy is in a self-sustaining recovery”, added Goldsmith, who was in Santa Barbara earlier in December for a reception hosted by the bank’s Montecito office. One thing the Fed is keen to avoid is the sort of forced policy retreat experienced in recent years by the European Central Bank and others that raised rates only to cut them again later.
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Higher US interest rates will have far-reaching implications for every corner of the world economy, from your home and vehicle loans, companies and governments’ borrowing costs, to the value of currencies and commodities.
To the Fed, a rate increase represents a vote of confidence in the United States economy after a long, uneven recovery from the global financial crisis and deep recession.
But as the interest-rate hike now tempts investors to look toward America, it could mean less investment capital comes to other financial markets, including those in emerging countries. Naturally, a 0.25% increase in interest rates is not going to make a significant difference, but if interest rates do increase to 1.375% by the end of 2016, that will be a big step for the bank.
Rogers explained that the rate hike is relatively insignificant.
The US dollar strengthened a little against the euro, but weakened a shade against Asian currencies as investors, pleased the waiting game is over, were lured out of safe havens and into emerging markets.
Even with a rate increase, most economists expect consumer spending to stay heathy and solid hiring to continue, perhaps even driving unemployment even further below its current low level of 5 percent.
“To keep the economy moving along the growth path it is on… we would like to avoid a situation where we have left so much [monetary] accommodation in place for so long we have to tighten abruptly”, Yellen elaborated. USA oil production has doubled over the past six years, and Iran will soon be feeding more into the global market as its worldwide sanctions are lifted. Household incomes remain lower than they were a decade ago when adjusted for inflation, and wages have climbed only sluggishly even as firms hired back workers.
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Yellen acknowledged that fear Wednesday but said: “I don’t believe we’ll have to do it”. The question now is whether the Fed move provokes a stampede. “Given ongoing deflationary risks and slow global growth, future Fed hikes are likely to be cautious and gradual”, he said a report.
