That of course would be a welcomed development to sponsors of corporate pension plans. Though hard to pinpoint, the neutral Federal Funds rate is among the Fed’s key metrics.
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Williams said he is “completely confident” that the Fed’s timing on its first rate hike was appropriate. That perception, the newspaper noted, is echoed in a new study from the Pew Research Center that shows the middle class (households earning between two-thirds and twice the overall median income) is shrinking and no longer the majority of Americans.
On the contrary, the local currency exchange rates of emerging markets, including the lira, which reached new peaks on the eve of the Fed’s decision, increased slightly against the U.S. dollar, a matter of “profit realization”. “Eight FOMC meetings a year with stated guidance of 1.0% points a year suggests increases every other meeting, or 0.5% by the next rate increase for federal education loans”.
“Corporate rates have bounced all over the place without any movement from the fed”, notes Glickstein.
In Asia, Chinese shares ended notably higher on Thursday on improved market sentiment, with the benchmark Shanghai Composite Index jumping 1.81 percent to end at 3,580 points.
Following the lead of the U.S. Federal Reserve, the Bank of Mexico raised its interest rates for the first time in eight years on Thursday Dec. 17.
Countries such as China cut its interest rates in October to 4.35% as it grapples with a slowing economy. “Today’s lows are probably not the lows we’re going to see next year”, said Kenny.
The S&P 500 tumbled 31.18 points, or 1.50 percent, to 2,041.89. “On a historical basis they are being anything but aggressive”, said Erik Weisman, chief economist with MFS.
Higher interest rates would also pose difficulties for millions of vulnerable households.
Plans that are well into a Liability Driven Investment Strategy, which lowers sponsors’ funding liabilities by pegging a plans’ investment strategy to the cost of future liabilities, will have less interest rate exposure, by design.
If you’re trying to manage a large sum of credit card debt, one option is to rollover your debt into one of the many zero or low interest rate cards on offer right now. “The Fed’s interest-rate hike was largely anticipated and yesterday’s sell-off seems a little severe and hence some correction”.
The renminbi has dropped by 1.4 percent against the dollar in two weeks. And, within hours of the decision, there were a number of articles written about how the Fed’s move to lift rates was wrong or mistimed, also mentioning the central bank’s 2% inflation target, as if the inflation target was set in stone and the only metric that matters.
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Glickstein says it’s vital for sponsors to consider all contingencies.
