Interest Rate Hike from the Fed Expected in December
- October 9, 2017
- Posted by: Andrew Rombach
- Category: Financial News
With an improving economy and hopeful trends in inflation, the Federal Reserve could raise interest rates again in December according to Philadelphia Federal Reserve President Patrick Harker according to MarketWatch.
These comments have been echoed by a few members of the Federal Open Markets Committee (FOMC) who predict the increase to come during the 12-13 December meeting. Currently, market experts peg the chances of an interest rate hike at 63 percent for the December meeting.
Furthermore, Fed Chair Janet Yellen signalled in September that another rate hike by the end of the year could be likely. She expanded, “We continue to expect that the ongoing strength of the economy will warrant gradual increases in that rate to sustain a healthy labor market and stabilize inflation around our 2 percent longer-run objective.”
However, the decision to increase rates is still not a sure thing. There are a handful of members on the central bank committee that want to hold off increasing interest rates until inflation approaches the 2 percent annual inflation rate target. The slow inflation rate has been caused by a number of issues facing the U.S. economy such as wage stagnation and more.
Another factor to consider is appreciation. Inflation in the real economy is extremely weak due to the continual monetary stimulus that the Federal Reserve pumped into the economy over the last decade, especially in the financial sector. This stimulus has caused massive asset appreciation which is comparable to the effects of hyperinflation on a nation's economy.
“By continually using stimulus to deal with crises and not letting creative destruction take over, you make a subsequent crisis more likely bypassing the problem along to some other part of the global financial system, and usually in bigger size.” Deutsch Bank’s Jim Reid remarks, “In a flat-currency world, intervention and money creation is the path of least resistance. In a gold-standard world, mining new gold was the only stable way of increasing the money supply.”
This story will continue to develop as time passes, and many watchdogs will look to the upcoming November meetings as a better indicator a potential interest rate hike.
Such a rate hike would do several things. Student borrowers could expect higher interest rates on their student loans for the following academic year. Private student loans borrowers might see an uptick on their rates immediately if they took out variable rate loans; new federal borrowers can expect higher rates when taking out a new loan. Consumer can expect their credit card interest rates to rise across the board, and other short term loan products will get more expensive. However, if one has money put away in a high-interest account, then an increase in savings yields could be expected.
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