After the much-talked about Presidential election wherein Donald Trump triumphed over Hillary Clinton, the market has its eyes set on the Federal Reserve that hinted at a rate hike in December at its last meeting. Undoubtedly, the economy is picking up steam, with inflation gradually edging toward the desired 2% target and strength in the job market. Together, these have set the stage for a rate hike this month.
So have you braced yourself up for the move? Perhaps you have, if you follow the tide. Speculation is rife that the Federal Reserve may reach a consensus to raise the benchmark interest rate, when it meets today. In Dec 2015, the Federal Reserve raised interest rates for the first time in almost a decade to a range of 0.25%−0.50%. Currently, the market is bracing for at least another quarter-point increase.  Â
Is the Economy on Track for a Rate Hike?
A slew of economic data suggests that the environment is much conducive now and Janet Yellen may have little difficulty in arriving at a decision. Post Brexit, the U.S. economy looks much steady. The second estimate for GDP shows that the U.S. economy grew 3.2% in the third quarter, faring better than the first estimate of 2.9% growth and the second-quarter anemic increase of 1.4%.
Another factor that makes the case strong for a rate hike is the rise in consumer confidence. According to the recent Conference Board data, the Consumer Confidence Index rose to 107.1 in November from October’s upward revised reading of 100.8, and is at its highest level in nine years. Per the preliminary reading of University of Michigan, Consumer Sentiment increased to 98 in December from 93.8 in November. Trump’s future policies will play a crucial role in defining consumer sentiment but for now, all seems well.
Per the Labor Department, the economy added 178,000 jobs in November, up from 142,000 in October. Moreover, unemployment rate trickled to 4.6% last month from 4.9% in October, marking the lowest level reached in nine years. Given an improving labor market and the gradual rise in wages, we expect consumer spending to improve. Consumer spending increased 2.8% in the third quarter compared with 2.1% anticipated earlier. The Commerce Department recently unveiled that consumer spending advanced 0.3% in October.
