The U.S. Federal reserve on Wednesday could raise rates for the first time since 2006

The U.S. Federal reserve on Wednesday could raise rates for the first time since 2006


MOSCOW, December 16. Federal reserve system (FRS) that perform the functions of the Central Bank of the country, on Wednesday may raise benchmark interest rate on the two-day meeting on 15-16 December 25 b.p. with the current range of 0-0. 25% 0.25-0.5 per cent, experts say. Increased interest rates in the US since 2006, While, according to experts, there is no shock to global financial markets a rate hike in the U.S. will not produce – all built into the price.

“No surprise”

“The expected rate hike by the fed in December, should be, is the most publicized in history. It will not be a surprise to the market,” says economist Bank of America Merrill Lynch’s Michael Hansen.

According to the consensus forecast Bloomberg, 102 of the 105 surveyed economists expect a rate hike at the December meeting, the fed 0.25 and 0.5%. In addition, the implied probability of a rate hike at the meeting on 15 and 16 December 25 b.p., based on the futures rate Federal funds rate is 78%.

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Market expectations are based, including, and on the positive results of low policy rates in the United States. In December 2008, the us regulator lowered the rate almost to zero and stores it in the range of 0-0. 25% for seven years. Cheap money helped the U.S. market to significantly recover from the global economic crisis, which creates conditions for increasing interest rates. The unemployment rate fell from 10% in 2009 to 5% in November this year, while GDP in the third quarter of 2015 increased in annual terms at 2.1% compared with a decline of 0.5% in the third quarter of 2008.

In addition, the head of the fed Janet Yellen had to prepare financial markets for growth rates by repeated allegations that the U.S. Federal reserve discussing the possibility of tightening monetary policy at each of the meetings. And during the keynote address at the Economic club in Washington on 2 December, Yellen even stated that it was too long maintain the interest rates at the current level could undermine stability in the financial markets and even to plunge the U.S. into recession.

However, if the rate decision in December already incorporated in the prices, the pace of raising rates at subsequent meetings, the fed is not precisely clear. Earlier Janet Yellen just said that the rate increase will be systematic and has a precise timing.

“What is likely to be key at this meeting is the speech Yellen at a press conference about the pace and extent of further tightening of monetary policy,” believes the chief economist for the international markets ING’s Rob Carnell.

Assessment ING, the fed will raise rates by 25 b.p. with a probability of 70%, but the rates are likely to remain unchanged, experts believe, is not more than 5%.

Markets ready for rate hike

Rhetoric from fed officials in favor of increasing the basic interest rate in December, positive macroeconomic statistics and the almost unanimous consensus around the world in favor of raising rates – all of this suggests that the global financial market ready for the first in nearly 10 years the increase in the cost of dollar-denominated loans, and, respectively, and the dollar. While financial markets have been preparing for this event for several years. Since the end of 2013 the us dollar index (the value of the dollar to a basket of currencies of Euro, pound sterling, Japanese yen, Swiss franc, Swedish Krona and canadian dollar) increased by 26%, exceeding in this year the mark of 100 points for the first time in 12 years.

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Raising the fed rate now is very different from the tapering of monetary stimulus in the United States in 2013, says Michael Hansen from BofA Merrill Lynch. “Unlike the 2013 cycle of a gradual increase in the fed rate should be much less disruptive to the market. In addition, the indicators of external vulnerability in General look better for most developing countries, and international investors are now less risky,” explains the expert.

Shock the flow of funds of investors in financial markets occurred in 2013 in response to the tapering of quantitative easing (QE) is a first step, the fed is on track to tighten fiscal policy. In may 2013, the previous Federal reserve Chairman Ben Bernanke announced his intention soon to minimize the program QE3. According to Morgan Stanley, during the correction from may to August 2013 debt market of developing countries lost about $ 70 billion. Now experts of Bank consider that the risk of rate increases priced in, and do not expect a repeat of the capital flight from emerging markets in 2013

“Developing countries are now better prepared than before to raise interest rates in the United States. Dollar debt load is now lower, and the balance of payments look more stable. This makes the emerging markets less vulnerable to the further growth of dollar, and any violations of the established trends of capital flows”, – said the chief economist for emerging markets at Capital Economics Neil shearing.

SPECIAL project

The ruble is falling and growth
About what will happen to the ruble, according to experts – special project

Russia is among developing countries, and the ruble will be under pressure from the fed, experts say. “We do not expect any significant effects on the ruble from today’s meeting, however any negative surprises are likely to recoup through the price of oil and a couple of Euro/dollar,” predicts chief economist for Russia and CIS ING Bank Dmitry Polevoy.

In anticipation of the fed’s decisions on rate of the ruble is already very much cheaper due to the fall in oil prices. So, the dollar jumped by 10 rubles, exceeding the mark of 70 rubles. for the first time since August, while the price of Brent crude fell below $ 37/ bbl for the first time since December 2008.

“The overall picture is rather contradictory and very much depends on the fed’s decision on rate and subsequent comments of the head of the regulator. Minimum rise and soft rhetoric, for example, can provide substantial support for such higher-risk currencies like the ruble,” adds the expert of “BCS Express” Ivan Kopeikin.