Rate hikes in the US has sped up this year and one more is expected to be announced this week. Another three or four hikes is projected to occur next year. This would leave rates at 2% for the first time in a very long time. This is good news for investors, especially retirees, who need greater return from safer investments. Citigroup and JP Morgan Chase has even more good news for said investors.
Economies around the world have been picking up steam and the two companies above recently stated that rates should be at a minimum of 1% at the end of next year for developed economies. This would be the largest increase in rates in over a decade. It’s really sad that 1 or 2% sounds great at this point and time but rates have been scraping rock, or have gone negative, for so long I’ll take any increase at all at this point.
What’s frustrating is that monetary policy makers seem obsessed with inflation. They want it to increase before they raise rates. Often times called a hidden tax, inflation does make things like our homes worth more but all of our other items will become more expensive. Everyday items such as food and clothing. Rates going up and inflation staying tame sounds great to me. No need to destroy my net worth while raising rates in my opinion.
As mentioned above, inflation isn’t the only factor central bankers are looking at. Global growth is picking up and estimates for expansion next year are around 4%. If this expansion actually happens, 2018 would see the largest increase since 2011. Economic expansion would go a long way to easing fears of over extended markets. For example, US equities have been on a tear since possible tax cuts were announced. This has led to equity valuations being stretched above historical norms. The economy heating up could not only ease fears over these valuations but also prop the markets up.
All in all, central bankers are going to try their best to raise rates during a growth period without pushing economies into a recession. This kind of economic toying could be dangerous and defiantly could lead to rockier stock markets in 2018. However, only the future will tell and these markets have been far from normal, if something even exists.