“The first rate hike is nearly a done deal, but there’s more concern for the second rate hike or the third rate hike – if the Fed really can continue its rate-hike program in 2016”, he said.
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Interest income, which retirees particularly rely on, has been decimated for years by these near-zero interest rates.
Stock market: With the benchmark rate so low for so long, the market has been the only growth game in town for many investors. That’s down a bit recently, following a terrible week in USA and global markets – terrible, in part, because of an expectation that the Fed will move.
Student debt: Interest rates on new federal student loans – the most common type – are tied to rates in the financial markets and are reset annually for new loans.
For another, “Nobody believes the Fed will move up rates very quickly”, said University of Georgia economist Jeff Humphreys. “This is not one and done”, said Lawrence Yun, chief economist for the National Association of Realtors.
This week’s expected rate increase by the Federal Reserve should not cause home buyers to panic, if history is any indication.
“The Fed is going to package this announcement in a nice holiday box with a pretty ribbon on top”, said Sung Won Sohn, an economics professor at California State University, Channel Islands.
In the case of oil producer Nigeria “as the Fed tightens and the dollar gets stronger, you will see more pressure on the Nigerian naira”, predicts Jermaine Leonard, Fitch ratings agency director.
When rates go up, investors tend to demand more yield for taking on more risk relative to “safer” instruments (like government bonds), and prices tend to go down.
Total consumer debt across the nation remains below its 2008 peak of almost $13.9 trillion.
The looming news about a federal interest rate hike might sound discouraging to some, but one local investment professional says it’s actually a positive sign. If the rate is hiked, the greatest impact will be felt in the emerging markets, including India, whose stock markets are likely to see an exodus of foreign institutional investors, or FIIs. And that model contains what San Francisco Fed President John Williams has called a “magical” variable to help determine the natural rate, or R*, in economists’ jargon. She even thinks a hike this week will spark a “relief rally”, though she added: “I’m not saying a big rally”. “Its economy is in recession and it should loosen monetary policy but that only reinforces capital outflows, a drop in currency value and hence (a stoking of) inflation”, Garnier said.
The household budget effect of a single quarter-point rate hike is practically inconsequential.
Adjustable-rate mortgages, many of which are modified annually, could increase about twice as rapidly, by about a half a percentage point. If the Fed is raising interest rates, it’s because the economy’s getting better.
So ominous is the expected rate hike for the Indian market, that just its anticipation has sent the Bombay Stock Exchange tumbling in seven of the past nine trading sessions.
“A big negative of raising rates is the housing markets”. If the rate exceeds 6%, it dents the capacity of the Reserve Bank to reduce interest rates for the industry.
Some banks will benefit more than others, said Marinac, the expert at FIG Partners. “While the USA seems to be registering solid growth, that’s much less clear for Europe, Japan, China, and some emerging market countries”. It’ll signal that the USA economy is healthy enough to withstand higher borrowing costs for consumers and businesses alike.
The federal funds rate, which banks charge each other for overnight loans, was more than 5 per cent in early 2007, but has been near zero since 2008.
The S&P 500 continued to rally despite the rate hikes, moving from 1163 to 1420 in this period. Savers’ returns on money market and CD accounts will likely begin rising – but slowly.
According to HSH.com’s Weekly Mortgage Rates Radar, the average rate for conforming 30-year fixed-rate mortgages didn’t budge, remaining at 4.01 percent. And it is possible that they are right.
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“Rates are not likely to rise as fast as they would like”, Swonk says.
