RATE HIKE CERTAIN IN MARCH US FED MEET!

By Ruma Dubey

This was a US Federal Reserve meet before the actual meet.

Speaking at the Executives’ Club of Chicago, Yellen gave a clear indication of what of expect during the scheduled March 16th meet.

Yellen said, “At our meeting later this month, the Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate.”

She sent out strong signals that the Fed was finally ready to take a bold step ahead and hike rates at its March meet. She even went on to suggest that there were more hikes this year if the economy continued to perform the way it was doing so currently.

These were words which we heard for the very first time from Yellen, ““The economy has essentially met the employment portion of our mandate and inflation is moving closer to our 2% objective.” Thus her plans of hiking rates based on data and the economic parameters of employment and inflation are almost met. The CPI for January was at 1.9%....oh so close to the assigned 2% mark! On the employment front, in January 2,27,000 jobs were added and unemployment is at 4.8%, way below Fed’s target of ‘full employment’ which is above 5.5% yet much closer than before.

For some time now, Yellen too has been indicating that March was the time when the rate hike would come and tonight’s meet more or less made that into certainty.

The moods in the USA are upbeat what with Trump expected to usher in growth through major infra builds, tax cuts, bring down regulations and increase defence spend. All these expectations have already sent the dollar soaring high and the US stock prices too have been zooming up.

Yellen too seems to be happy with the economy and there is no scare on the horizon, at least as of now. Yellen said, “On the whole, the prospects for further moderate economic growth look encouraging, particularly as risks emanating from abroad appear to have receded somewhat,” Yellen said in her prepared remarks. “The Committee currently assesses that the risks to the outlook are roughly balanced.”

How will the Indian markets react to this news on Monday? It is good news and hopefully, a rate hike should be taken as an indicator of a robust US economy and not a signal that FIIs will scoot. Of course they will not scoot and India too remains a major hotspot and an avenue to make money in the emerging markets.