Two days more, Fed ‘should’ raise rates

There are non-stop articles about the biggest day this year. It has affected most emerging market currencies. Federal Reserve ‘should’ raise rates this coming Wednesday. This would be the second time in 10 years that it will be raising rates. Yes, only the second time since the U.S economy did not do so well previously. However, how it is doing WELL this year. Well, versus the whole world anyway. Else, how can its currency be rising against most of everyone else especially ringgit? You can read full article about it by economist.com here. Rates is said to be up by 0.5 – 0.75%. Yes, only up 0.5% to 0.75% but the US$ has already appreciated way past that against most emerging market currencies. Let’s repeat the three reasons why the rates must be raised.

12 months ago, the U.S unemployment rate was 5 percent. It has since improved to 4.6 percent. This is already the LOWEST ever since 2007. (Before the U.S mortgage crisis) It seems that it should improve further because companies both small and large are saying that it’s facing difficulties in hiring. There’s even a stats on how fast it takes to fill a vacancy. From 23 days previously, it is now 28 days. (As per Torsten Slok of Deutsche Bank)

Wage (Salary) is up, that’s why. During good times for the economy, both of these should be going up. In the U.S, the hourly wages are up 2.5 percent versus a year ago. (Higher than their inflation rate). However, as per another stats from researchers at the San Francisco Fed, this has actually risen 3.9 percent when stats from retirements of baby-bloomers with fat salaries are excluded.  (It’s bad if due to age, these people are earning higher instead because of their knowledge and experience)

Inflation is not yet back to Fed’s 2 percent target. However, it is now at 1.7 percent higher than a year ago. However, this may be rising. Congress will most probably cut taxes next year.Oil prices are rising too and Mr. Trump may also be imposing import tariffs. This may affect growth but will still be pushing up prices where there are fewer options. As it is, a stronger dollar does not mean the economy benefits, especially where the trade deficits are concerned because demand would be lower too.

Yes, all these are events which is by far bigger than anything that the fundamentals for many emerging economies can beat. If ringgit does not move much till then, perhaps it can then start to move upwards. (My personal hope). I needed to change some SGD for my trip soon. Haha. Do keep reading and understanding that Ringgit could not have been the top 2 best current just in the beginning months of 2016 and suddenly be the worst just after the election of a new American president. Oh yeah, just a few months ago, Mr. Trump predicted a huge recession for the U.S   Cheers.

written on 12 Dec 2016

Next suggested article:   Bank of England: Financial stability a challenge because of Trump and Brexit

 

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