top of page

Feds Lifts Rates ..... Where to form here?

We can finally put the US interest-rate debate to bed or at least for the moment as the US Federal Reserve lifted its benchmark short-term lending rate for the first time in a year. While it appears that further US rate hikes are likely ahead, there is a growing belief that the low interest-rate environment is likely to persist for the immediate future. Economic commenters are urging caution against market exuberance that has been present following the US presidential election.


Overall, the Fed’s move was a healthy course, given the very low level the federal funds rate has been at for such a very long time. The increase has been anticipated and fully priced in the market. It is important to look at the Fed’s guidance in terms of where rates are headed. The federal funds rate remains extremely low and many anticipate that short and long-term interest rates are likely to remain low to a long time. As we look into 2017, we are likely to see the federal funds rate averaging somewhere around 1%, which is still extremely low. Some experts anticipate there to be more interest-rate increases ahead, but they all expect them to be very gradual. It was December 2015 when the Fed raised rates for the first time in this cycle, so we’ve seen a full 12 months between increases. We expect the time frame for the next rate hike to likely contract going forward, but we see the pace of increases being extremely gradual, something on the order of 0.75% per year for the next couple of years. While interest rates are rising, nominal rates and pace of future increases need to be kept in mind.


The impact for Australia will be minimal but will be felt. Already we have seen a number of lenders increase their lending rates for business and investment. These changes are only a few basis point to ten basis points. Most Australian lenders rely heavily on funding from the US and Europe and simply this cost was been passed on and without fuss have done this. It would seem with increasing borrowing costs that the RBA is less likely to move on rates. I think it is increasingly obvious that rates wont be getting any lower and we need to prepare for an eventual increase at some point during 2017.




Disclaimer

This information is current as at 19/12/2016. This article has been prepared by Heart1Stop, a social media brand owned by Heart Mortgage Services and Heart Financial Advisers. The information contained in this article is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The views expressed here are not those of Heart1stop, Heart Mortgage Services, Heart Financial Advisers, shareholders, directors or staff and associated contractors and business associates. This article has been prepared without taking into account any person’s objectives, financial situation or needs. Because of this, you should, before acting on any information contained in this article, consider its appropriateness, having regard to your objectives, financial situation or needs. Any taxation information contained in this article is a general statement and should only be used as a guide. It does not constitute taxation advice and is based on current laws and their interpretation. Each individual’s situation may differ, and you should seek independent professional taxation advice on any taxation matters. While the information contained in this article may contain or be based on information obtained from sources believed to be reliable, it may not have been independently verified. Where information contained in this publication contains material provided directly by third parties it is given in good faith and has been derived from sources believed to be accurate at its issue date. It is not the intention of Heart1Stop or Heart Mortgage Services and Heart Financial Advisers that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. To the maximum extent permitted by law: no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up to date or fit for any purpose; and no party of Heart1Stop or associated entities as mentioned is in any way liable to you (including for negligence) in respect of any reliance upon such information. This article may also contain links to websites operated by third parties ("Third Parties") who are not related to Heart1Stop. These links are provided for convenience only and do not represent any endorsement or approval by us.


12 views0 comments

Recent Posts

See All
bottom of page