Yellen's remarks last week cemented the odds for a March rate hike pushing it close to 100%, after a string of hawkish comments from various Fed officials.
But until recently, the expectations for a March hike were very low. Why did the odds increase drastically in the last two weeks? Have the economic forecasts improved all of a sudden to warrant this change of stance? Or is the Fed's desperation not to fall behind the curve driving this rate hike?
With the U.S. GDP growth rate for 2016 at 1.6%, the Trump quoted 3% growth seems distant. Agreed, the fiscal stimulus can boost demand, but at full employment, it is doubtful if this demand translates into real growth. Also, given the "anticipated" possibilities of favourable economic policies and future growth, it remains to be seen if the March Fed hike, if it happens, will be supportive of the markets.
What happens to the stock markets now? Usually, rising rates are not good news for the equities, but the hike, if it happens might not hurt the markets, at least for now. Mostly because the markets are looking at rate hike as a sign of improving economy and normalisation of policy from the ultra low rates.
But its definitely the time to ride the wave of high optimism with lots of caution. Read more about the US markets here: http://hubs.ly/H06zvtz0
But until recently, the expectations for a March hike were very low. Why did the odds increase drastically in the last two weeks? Have the economic forecasts improved all of a sudden to warrant this change of stance? Or is the Fed's desperation not to fall behind the curve driving this rate hike?
With the U.S. GDP growth rate for 2016 at 1.6%, the Trump quoted 3% growth seems distant. Agreed, the fiscal stimulus can boost demand, but at full employment, it is doubtful if this demand translates into real growth. Also, given the "anticipated" possibilities of favourable economic policies and future growth, it remains to be seen if the March Fed hike, if it happens, will be supportive of the markets.
What happens to the stock markets now? Usually, rising rates are not good news for the equities, but the hike, if it happens might not hurt the markets, at least for now. Mostly because the markets are looking at rate hike as a sign of improving economy and normalisation of policy from the ultra low rates.
But its definitely the time to ride the wave of high optimism with lots of caution. Read more about the US markets here: http://hubs.ly/H06zvtz0
