“The probability of a rate hike happening is about 80 percent, so quite a lot of that news has already been incorporated into gold prices”, Capital Economic analyst Simona Gambarini said.
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It marks the end to seven years of near-zero rates that prevailed since the U.S. was struck by the worst financial crash since the Great Depression.
Yet that won’t be the only news from the Fed. The Fed is expected to double its current $300-billion cap or even make the program unlimited to ensure that borrowing is more expensive.
A USA rate rise would have global repercussions, and could adversely affect emerging economies, experts say. So it might be a while before savers get a raise.
One of the Fed’s dual mandates is to maximize employment. The central bank is under political pressure, especially from Vice President Jusuf Kalla, to cut interest rates, which it has maintained at 7.5 percent for nine consecutive months. Strong jobs figures for November were seen as the final seal for a rate increase.
“But what Americans want is growth”.
With the jobless rate at 5 percent, half its 2009 level, Ms. Yellen was confident enough to warn lawmakers on December 3 that inflation could rise “significantly” above the Fed’s 2 percent target if rate-setters aren’t ahead of the curve. It’s that they’re rising too slowly. The rate has hovered between zero and 0.25 percent for the past seven years.
Pro-gold schemes in Asia will also help, said the WGC, while the Chinese plan to introduce a yuan-denominated gold pricing mechanism to facilitate regional market trading is also likely to take shape in 2016.
“The Fed reaffirmed that the pace of rate hikes would be slow”, James Marple, senior economist at TD Economics wrote in a research note.
Rates on mortgages and auto loans aren’t expected to rise much soon. They will also run the repo auction between 12:45 and 13:15 Eastern (1745-1815 GMT) with banks, government-sponsored entities and some 130 money funds that do not usually do direct business with the Fed.
“I think the Fed will raise rates dramatically less than the Dot plot implies”, says Ben Laidler, global equity strategist at HSBC. Yellen is expected to keep the emphasis on a slow and incremental pace for additional hikes. But not always. When the Fed last raised rates between 2004 and 2006, the S&P 500 actually gained 15%.
More Fed policymakers expect the short-term rate will be 1.38 percent or below at the end of 2016 than in previous projections in September. Fed Chair Janet Yellen and other officials at the USA central bank have signaled well in advance that they are likely to raise rates for the first time in almost a decade.
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The Dow Jones industrial average rose 149 points, or 0.9 percent, to 17,670 as of 9:35 a.m. Eastern time. All three are considered “doves”, who tend to be more concerned about unemployment than about potential inflation threats.
