Market focus shifts to pace of Fed rate hikes


Financial markets around the world have been in lock down mode this week before the results of the Federal Reserve's Open Market Committee meeting are made known.

After all the handwringing in recent months over the next Federal Reserve interest rate hike, the local stock market is quite calm now that the hike is apparently almost here.

What do you think of the reasons why the Fed is likely to increase interest rates?

"When rates rise, entrepreneurs relying on credit or relying on customers [who rely] on credit may face additional headwinds", he said.

Wall Street's major indexes have been largely kept in check since the start of the month as investors prepared for higher rates following a slew of hawkish comments from top Fed officials. During those years, any slight shift in sentiment about when the Fed might begin raising rates - a step that would lead eventually to higher loan rates for consumers and businesses - was enough to move global markets. So a borrower pays interest to offset this risk. The federal funds rate represents the rate at which banks charge each other to borrow money overnight. One of these is the risk of inflation. It now stands at 9.2%, which is still higher than it was at the start of the Great Recession in 2008.

New Zealand interest rates are on the move - United States 10 year bond yields last traded at 3.15 per cent from 2.15 per cent last August. For the record, I am not expecting a recession anytime soon.

That's important because "when the real fed-funds rate is negative, as it is now, equities have gone up an average of 3.6% over the next three months" following a third rate rise, noted Neil Staines, head of trading at The ECU Group, a London-based investment manager, in a note last week.

While overall US inflation has risen of late, the factors pushing it higher are expected to be transitory. The Fed is seen as virtually certain to hike the Fed-funds rate by a quarter of a percentage point. It does, however, earn interest for the banks.

In short, savers are not happy and banks are not happy. Societe General's head of foreign exchange strategy Kit Juckes said that the appetite for risk assets to deliver good returns remains strong, even as expected USA rate rises capture the focus of global investors. They have been well below what any reasonable person would describe as normal.

How will consumers and corporate America react?

To find out more about what the Federal Reserve's impending changes mean for the economy at large, and for your business and investment portfolio, Business News Daily spoke with economists who are keeping an eye on the US central bank.

Those are figures the Fed should be fine with, Low said.

"The Fed is not really driving the economy so much as they are reacting to it". We no longer need a crutch; we now need to relearn how to run.

Back in December when the Federal Reserve raised interest rates for the only time of 2016, it hinted at three coming rate hikes this year, assuming the economy kept getting better, job growth remained steady and inflation continued to tick higher.

The question is now isn't whether the Federal Reserve will raise short-term interest rates tomorrow. Any fears of rising rates will likely be mitigated by the higher levels of economic activity that stem from stronger confidence levels. Plastics processors and most other manufacturers will adapt.