Fed Rate Hike: The Impact will not be anything as Bad as Last Year

As the Fed hiked rates by 25 basis points on December 14th, it brought back memories of the last rate hike in December 2015 when the global markets lost nearly $12 trillion in terms of market capitalization. The question is whether such a scenario could replay again this time around. It is highly unlikely for 4 key reasons… Continue reading

Key Points that Follow from the US Fed Meet

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Key Pointers Emanating from the Fed Funds Meet in December 2016…

  • The Fed in its December meet decided to hike the Fed Funds Rate by 25 basis points from the range of 0.25-0.50% to the new range of 0.50-0.75%. This rate hike comes a full 1 year after the rate was last hiked by 25 basis points in December 2015.

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FOMC Meet

FOMC has surely laced the October meet with a hawkish tone…

The absence of a rate hike in the FOMC October meet was not a surprise. The Fed was never supposed to hike rates in October. But the October FOMC meet was important because it was to lay the foundations of the December meet. Hence the outlook and the guidance in the October meet were keenly awaited.

The language and the commentary of the Fed post the FOMC meet has surely been hawkish. While there is no clear time table of rate hikes, the stage seems to be set for a rate hike in December this year or at least in the first quarter of 2016.

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The Fed may have quietly put off rate hikes to December 2015

The Federal Open Market Committee (FOMC) meet that ended on July 29th still leaves the big question open; will the Fed hikes in September or will they postpone the rate hike? For one, the Fed has enough time till September 16th as there are no intermediate meetings scheduled. That will give the Fed a full 7 weeks to analyze data on growth, labour, wages and inflation before arriving at a rate hike decision. However, as one breaks up the press release issued by the Federal Reserve Board after the FOMC meet, it looks quite likely that the rate hike may be put off from September to December. Let us understand why! Continue reading

FOMC message

Tighten we will, but not as much as you fear!

There was a lot of furor about the Fed dropping the word “Patience” from its post FOMC meet discussions and statements. It is already worrying analysts that dropping the word “Patience” may signal rapid tightening of rates. That is not necessarily the case.

Unemployment is the key…

One of the key metrics that the Fed will look at is the rate of unemployment. That currently stands at 5-5.2%, down from around 5.7% last year. The Fed will be comfortable raising rates after unemployment comes down much further. Fed feels that raising rates when there is still a job slack in the economy may not be a great idea. While the employment data may be on track, the Fed will still prefer to bide its time. Continue reading

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