The higher interest rates that banks begin collecting from consumers also mean higher returns for people who have savings accounts or certificates of deposit, known as CDs.
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The worst-kept secret in the financial world is that the Federal Reserve is all but sure Wednesday to raise interest rates from record lows by a modest quarter point. As a general rule, when 10-year Treasury yields go up, mortgage rates go up.
Fed Chair Janet Yellen has been preparing financial markets for a rates liftoff this week as evidence grows that the United States economy is strong enough to weather tighter monetary policy. Yellen has said she wants to see confirmation that inflation, which has been running below the central bank’s target of 2 percent for several years, is actually picking up. Well, not much right away because raising rates is done gradually. But, if you think about it you need three things to have a house: ability to pay a mortgage, a down payment and a FICO credit score. Reducing interest rates is a primary tool when the economy slows.
“While interest rates charged on revolving credit [like credit cards and home equity loans] are pegged to the target Federal funds rate, credit card rates in particular have a large variable spread component”, she writes.
None of the impact will happen overnight, experts say. Foreigners keep buying them, because rates here are already higher than in Europe and Japan. Goldman expects the Fed would remove cautious language about monitoring inflation developments closely. But the investment markets are expecting only 0.85 percent a year from now.
That said, interest rates are notoriously hard to predict, and very smart people can be surprised.
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. The act of increasing interest rates often reduces money supply and serves as a drag on GDP growth. We may have seen a bit of that the last couple of years.
In this piece, we take up from where in equities article, we concluded that path of USA rate hike more important than the first rate hike and discuss the probable rate hike path. With an interest rate hike, the Fed dramatically increases theses risks and a potential repeat of the 1980’s Latin America debt crisis.
According to Gallup, a rate hike will affect young and middle-aged investors more than the elderly.
That’s great news for world travelers, but it would hurt all types of US companies that sell products overseas.
Underlying all this uncertainty, there is a huge debate going on in the financial media about whether the USA economy is “mid-cycle” or “late-cycle”. This may set off a selling spree in emerging market assets.
In currencies the relative strength of the dollar has been the story.
An expensive dollar means India will have to shell out more for imports, which will erode its finances.
Singapore’s benchmark Straits Times Index (STI) dipped 0.69 per cent yesterday, extending a fall of 1.54 per cent last week.
Kelly is ready for the rate hike, and he expects the markets are too.
As speculation USA rates will rise boosted the dollar, the PBOC last week allowed more yuan weakness. Japan is barely growing.
Secondly, global economic growth remains compromised by the aftereffects of the GFC.
Unfortunately that’s not the end of it: The growth is unimpressive, stuck at about 2.25 percent per year.
To varying degrees, all that weighs on the USA economy and the Fed.
Traders said many investors have already positioned their portfolios in anticipation of the widely expected move, and will instead be focusing on comments from Fed officials about the pace of future rate hikes, which is expected to be gradual.
The U.S. economy has made lots of progress since the recession, but it’s still not at the finish line, some say.
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China may, in contrast, prove to be a special “emerging” case and fare better after any Fed decision to end the long months of rate rise rumble.
