US Federal Reserve likely to raise interest rate in December: Angel Broking

Angel Broking said it believes that the US Federal Reserve is likely to raise policy interest rates starting from December this year.

The broking house was responding to the latest move by the US central bank to keep rates steady at its last policy decision before next week’s US Presidential election.

“The Federal Reserve has kept the interest rate on hold for now but in the accompanying commentary it has said that the case for a rate rise “continued to strengthen” signaling a possible rate hike in December,” said Vaibhav Agrawal, vice president and head of research at Angel Broking.

The Federal Reserve, headed by Janet Yellen, does not give categorical assurances or guidance about its future course of action, but always gives hints and data to the public to prevent any shock or disruption when it changes course.

“Overall commentary indicates that the case to increase rates is getting stronger and there is high probability now that Fed may increase rates in the December quarter,” Agrawal said.

“The Fed statement also says that it will wait for further evidence showing continued progress in the US economy. It looks like Fed is poised for a rate hike in December as inflation continues to move towards its longer run objective range.”

The decision by the United States government to keep rates low and print more and more money over the last few years and push it into the market through asset purchases has come under heavy criticism from conservative economists.

The quantitative easing policy is widely seen as responsible for fuelling global asset-price inflation and is seen as a major driver behind the rise in stock markets across the world.

It is believed that a rise in US interest rates would result in a re-allocation of the ‘surplus funds’ to dollar-denominated assets such as US Treasury bills, leading to withdrawal of funds from emerging markets such as India.

However, on the positive side, the rate hike would also signal increased confidence in the US economy.

“The rate hike suggests that US economy is becoming stronger which is good news for global markets,” Agrawal added. “We also believe that the future rate hikes will be gradual and liquidity will remain strong due to the monetary policies of other central banks.”