Interest Rate Hike by US Fed Imminent

Both household wealth and stock prices in the United States have hit peak highs. The Federal Reserve is near its target of containing inflation within two percent. The economy of the world, including the once near-death Eurozone has sidestepped new downturn risk. It has been a good period for Janet Yellen, the Federal Chairperson. It is apparent that she can declare a victory when she will hold her maiden conference in 2017 with an interest rate rise. The rise will leave the monetary policy looking normal.

Data and employment

The employment data for February published on March 10 pointed the route to a rise in interest rates. The economy has added a further 235,000 jobs. The rate of unemployment was about 4.7 percent.

The increase of rates which is expected on March 15 will be the Federal Reserve’s second within four months. This is a much quicker pace than what is normally observed in recent times. Similar behavior of this sort was last observed during the 2006 US housing boom. The hike in rates will bring the target rate of the US central bank anywhere from 0.75 and 1.00 percentage points. This is near the low end of the range of which the Federal Reserve enjoyed prior to the financial crisis that lasted between 2007 and 2009. According to Jon Faust, a former adviser to the Fed and presently a professor at John Hopkins University, there is no need for any fundamental shifts or intrigue in beliefs concerning the economy when it comes to understanding the need for an increase in rates. He went on to say that the Fed will soon resume its normal path. This will surely happen until something bad occurs. The rates will be increased in March. This will set them on a path which will raise rates more in 2017.

Rate rise

Faust and a number of other professional economists are now concentrated on whether Federal Reserve will raise its rate rise forecasts as well. This could be a possibility when the Fed releases a slew of economic forecasts during the third week of March. When it came to historical precedents, March is not a good month for Yellen. In 2015 and 2016, the March meetings of the Federal Reserve has led the central bank of the US to downgrade economic forecasts. This happened after inflation expectations went south in 2015 and also after a meltdown of S&P 500 index in 2016.

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