Impact of FED’s possible interest rate hike

Sunday, March 12, 2017 - 17:21:06

(VOVworld)- According to the US Labor Department, a wave of hiring in February pointed to a strong foundation for US economy, providing further evidence for the Federal Reserve that the moment to raise interest rates has come. FED’s interest rate increase shows the positive signs of the US economy but also creates impact.
impact of fed’s possible interest rate hike hinh 0
Fed Chair Janet Yellen

The Labor Department reported a gain of 235,000 jobs in February, 2017, surpassing a previous forecast of 190,000 jobs. The jobless rate has fallen from 4.8% to 4.7%. Earlier Fed Chair Janet Yellen dropped a strong hint that an interest rate hike is on the way later this month. Speaking at a hearing of the Senate Banking Committee on February 14, Janet Yellen made optimistic statements on the US economy saying it continues to achieve progress in term of employment and price stabilization. She said the US economy will continue to grow but at a modest rate. The FED Chair said that in its coming meetings, the Federal Open Market Committee will evaluate employment and inflation rates as well as the possibility of raising interest rate. The FED Chair repeated this possibility a week later. Experts are certain about FED’s interest rate hike unless weak economic data is surprisingly announced. The job report on March 10 is considered the last data that FED needs before deciding lifting interest rates for the 3rd time in 15 months in its meeting on March 15.

But FED’s interest rate hike creates impact. If FED lifts interest rates, the borrowers will be negatively impacted. Loans for buying houses will be more expensive and interests to pay on credit cards will increase sharply making American goods more expensive. As a result, the US trade will be affected. FED’s interest rate hike will also affect emerging markets because the capital flow will return to the US. For borrowers, of course, higher rates will add to overall costs. The US real estate market depends heavily on mortgage activities. So, the interest rate hike will cause more difficulties for the Americans to buy houses. Homeowners with adjustable rate mortgages will see their payments go up over time as their mortgages reset. For savers, rates haven't edged up much in the past year. Saving rates are likely to show a bit more improvement for those who are willing to shop around for better rates. Even so, interest rates on certificates of deposit and savings accounts are expected to rise very slowly.

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