What a Fed rate hike means for you

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Earnings season is in full swing, but it's what those in charge of monetary policy here, in the USA and the Far East have to say that will really move markets. With Yellen's new outlook for the rate hike, Trump praises her yet again. The US rate hiking cycle will also underpin dollar strength, which will continue to erode the export competitiveness of the GCC's non-oil sector.

"Markets fully expect a rate rise, so market reaction is likely to be muted unless the Fed disappoints, which would lead to lower bond yields and a lower dollar, although that is not our expectation", Mike Bell, global market strategist at JP Morgan Asset Management, wrote in a note. Officials raise interest rates to cool the economy and fend off inflation.

The implied probability of a Fed rate hike has jumped to almost 100 per cent after Fed Chair Yellen said that a further increase in short term interest rates was likely to be appropriate at the Fed's policy meeting on March 14 and 15 if employment and inflation continue to evolve as expected.

While overall US inflation has risen of late, the factors pushing it higher are expected to be transitory.

Fueling the Fed's need to continue pushing rates higher is a slew of improving reports on the health of the US economy.

So far, investors have been out ahead of the Fed. It is a broader measure including those workers who are only marginally attached to the workforce (and are therefore considered "underemployed") and those who have given up looking for work. Meanwhile, labor-market data show more Americans are entering the workforce as wages rise.

HEALTH IMPACT: Healthcare stocks held relatively steady overall amid increased expectations that the Republican proposal to overhaul the Affordable Care Act, also known as Obamacare, is unlikely to pass in its current form.

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The Fed's response to the policies of US President Donald Trump will also be interpreted for clues as to how much committee members believe the growth-orientated policies will boost inflation.

Although some firms have started to pass those higher rates on to savers, the Fed may have to raise rates a few more times before better yields on savings accounts become the norm, McQuay said.

Don't expect any movement at the Bank of England on Thursday at noon, or from Japanese rate setters while London sleeps.

In the wake of the report, the odds of a March rate increase climbed to more than 90%, up from only 25% at the beginning of February, according to futures contracts monitored by the CME Group's Fedwatch program. Equally important to consumers is what the increases will mean for student loan, credit card and mortgage balances. GDP expanded 1.9 percent in the fourth quarter of 2016. Savings accounts, CDs, and money market vehicles are all likely to provide somewhat higher income when interest rates increase.

The typical fixed rate on a 30-year mortgage is now around 4.2%.

Setting aside concerns about Brexit and a string of potentially destabilising elections on the continent, Fed policymakers have judged that the strength of the economy is enough to override a series of rate rises, possibly taking the base rate to nearly 2% by the end of next year.

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