Five must read details on Fed rate hikes


15 September, AtoZForex.com, Lagos – It’s been seven years down the line, since the Federal reserve has kept the federal funds rate with the banks overnight borrowing rate at record lows of zero. As the year comes to an end, we get closer to the timing for interest rate hikes, perhaps to come this week in the Fed’s meeting.

 A host of outcomes are expected from the likely increase in borrowing costs for banks. One of which is the possibility that it can trigger mortgage rates to rise, which in turn may eventually lead to job scarcity and edge down in stock prices. This just one of the important details on Fed rate hikes, notwithstanding there are many assumptions which can result from the rate hikes.

Highlighted below are the 5 details:

I. Reduced bank fees and car loans:

The introduction of the new banking regulations is skewed towards preventing a come back of the 2008 financial meltdown, but this new regulations has raised the cost of providing ordinary retail services by banks.Things are set to go bad as a result of higher short term borrowing rates for banks. One bright side though is that banks are likely to start competing more for customers money and pay higher rates on 1-5 years CDs.

II. Unemployment isn’t going to be badly affected:

A sputtering manufacturing sector stems as a result of a stronger dollar and lower oil prices, still there has been a continuous improvement in the job Market. Getting job placement remains toughest for the longterm unemployed whose skills plummeted during recession and slow recovery.

III. Insignificant risk in mortgage rates

Corporate and municipal bond rates are always affected by changes in treasury rate, therefore the impact of fed raising interest rate largely depends on whether increasing the fed fund rate edges up the 10-years treasury rate. Looking back to 2004-2005, when Ben Bernanke pushed up short rates rarely budged, because purchase of treasury by China was done at an exasperating pace to keep the yuan cheap against the dollar.

IV. Strong stock prices are imminent

China’s stalled progress affected equity prices of recent, and further complicating it was the initial fed interest rate increase. However, there has been calmness in the markets. The stock market has moved upwardly solidly with short rates in the range of 3-4 percent.

V. Economic growth and inflation will surge

Since the surge back began, household balance sheet have been in their best shape and retail sales will continue to be boosted by lower gasoline. Moreover, overall inflation will rise to about 2 percent immediately gasoline drops thereby telling on the growth and inflation in the long run.

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