US Interest Rate Rise Likely In December

By |

Reading the details of the Federal Open Market Committee’s last meeting seems to confirm a hike in US interest rates is inevitable in December.

As the US economy improves and diverges from countries struggling with growth and inflation, the question is not so much when will the rate rise, but by how much.

The committee, comprising the main Federal Reserve decision makers and charged with supervising Treasury bonds, laid out the clear intention to shift the rate up by stating they felt all the conditions necessary to support and increase ‘could well be in place by our next meeting’.

The committee also voiced concerns about delaying an increase to rid money markets of financial uncertainty and to show that decision makers in the States were not worried about the robustness of the economy.

Signals to the money markets

So that’s it.

The Fed wants to send out signals to the markets that the USA has fixed the economy and is heading for growth.

Both the committee and Federal Reserve chair Janet Yellen want to make clear that the States is ready to start the journey back to economic ‘normalisation’ and that [part of that trip is shifting interest rates up.

Although the hike is not a sealed deal, betting against would not seem a smart idea.

Putting up interest rates will shake out the wheat from the chaff in the US economy.

Some companies, such as luxury jewellery brand Tiffany, are already complaining that a strong dollar is hitting sales.

Sales down at Tiffany

The expectation is as interest rates rise, so will the value of the US dollar against other countries, making exports more expensive and reducing the spending power of tourists.

Tiffany reported sales down by 8%, but saw store sales at home decline by around 6%, compared with an increase of 11% last year.

“The value of the dollar is pressuring our financial results because more foreign currency buys fewer dollars and tourists do not have as much to spend,” said a company spokesman.

“Uncertain, volatile markets are affecting consumer spending and we can’t see a change any time soon.”

Tiffany is seen as a bell weather for the US economy.

Year to date sales of $1.3 billion were 3% down on those of 12 months ago.

Leave a Comment