Interest rate rise a done deal, say investors


Analysts say that a Federal Reserve interest rate next month is inevitable.
After comments made by the banking body’s chair Janet Yellen, in which she said he would be staying in her role, despite criticism from President-elect Donald Trump, and that she would be looking to raise interest rates “relatively soon,” investors believe the rise will come during December.
Brokers say they believe there is up to a 95 per cent possibility that an interest rate rise is likely to come when the Fed’s Open Markets Committee meets in mid December.
Goldman Sachs said that it had raised its probability of a hike from 80 per cent to 90 per cent. Other analysts recorded a similar, or higher, likelihood.
During an evidence session to a congressional committee, Ms Yellen said the Fed would be making interest rates “relatively soon” and that the American economy was now “making very good progress”.
She said that improving employment data showed strengthening growth, which should lead to inflation moving up.
There were earlier expectations that the Fed would not move so quickly if entrepreneur Mr Trump won the election as a result over fears over the economy. However, the reality of his win has proved to be very different. While the value of the dollar did initially plummet it quickly rebounded and the Fed is now ready to move.
Ms Yellen has said that any policy decisions taken by Mr Trump’s new administration once he takes the keys to the White House will be “taken into account” when the Fed makes future rates decisions.
The last time the Fed increased interest rates was last December, from 0.25 per cent to 0.5 per cent. At the time, it said it was likely to raise rates four times during 2016. But the economic picture has meant it has held back.
This December, it is likely to increase rates by a further quarter per cent.
By contrast, the UK is set to keep interest rates as they are. While the Monetary Policy Committee had said a further cut in base rate borrowing might be likely as a result of economic uncertainty brought about by Brexit, it is now holding rates at their record low of 0.25 per cent.
However, with improved growth forecasts, many analysts are predicting that rate rises will finally come for Britain during 2017.


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