Checking on FED rate hike probabilities

Even though the European Central Bank decision "was quite a negative surprise for the market, for now we are still in this situation where, because commodity prices are coming down, the inflation prospects have not improved".

Macro data points for the United States economy show the conditions are ripe for raising interest rates. Let's look at each one in detail.

Michael Pond, head of global inflation strategy at Barclays Capital Inc.in NY, said that the PCE's lower weighting for shelter and different measurement of medical costs versus the consumer price index, and "continued weakness in core goods prices" means the index won't start hitting the 2 percent mark until the third quarter of 2017. "At this point we think we will see liftoff next week". Much of this is from private investors sitting on cash because they aren't sure where to invest it, and even if they did returns would only be minimal and often are not deemed worth the risk.

In preparing investors for the rate hike, the bank has said for months any additional increases would still keep rates below "normal" levels.

A pause of three to six months between rate rises is consistent with economists' expectations in a Reuters poll last Friday, after employment growth boosted confidence that the Fed will raise rates in December.

I believe that at its next meeting, the Fed will adjust to this new reality and communicate its thinking to the market in order to provide a more favourable environment to foster economic growth.

"The Fed will set the interest rate on excess reserves equal to the top of the target range (at 0.50%) and the offering rate for its overnight reverse repo facility equal to the bottom of the target range (0.25%)". It would also signal that it intends to take the time needed to raise rates to the neutral rate while remaining data-dependent. "We anticipate that the FOMC members" median interest rate projections (the "dots') for 2017 and 2018 will be lowered by another 25bp each, to reflect the gradual rate hike path", it adds. That trend, of money staying within the closed loop of the financial system itself, is the reason that the Fed has to rates hike now, before Main Street is really growing strongly. A $3.85 billion increase, thanks to a rate hike, works out to a 24% increase, holding all else equal.

"It depends on what credit card you have and what your credit rating is and things like that, but if it's subject to a fluctuating rate, the increase in the [benchmark] rate would definitely have an impact", Christakos said.

The big moment is finally here: the Federal Reserve is about to make a big push upwards with interest rates for the first time since the recession began back in 2008 - and some people are anxious.

The move could be a prelude to further rate hikes next year as the world's largest economy gains momentum.

Experts maintain that though the domestic currency could come under pressure, a repeat of 2013 when the fall in the rupee was swift and massive is highly unlikely. The unemployment rate is low in part because so many Americans have dropped out of the workforce.

While the pace of the Fed rate rises is still up in the air, the benchmark 10-year Treasuries yield will likely firm to 2.50 percent by the end of 2016, according to fund managers interviewed. But the investment markets are expecting only 0.85 percent a year from now.

Once the effects of cheap oil and a strong dollar fade, the Fed may have room to speed up rate hikes if needed.