Money Minute – March 14 2017

 

Interest Rate Rise Coming

The following is a transcript from the video:

Tell you what, $40,000 think about that. That’s not a bad Tuesday morning, hey? Listen I just want to ask you something $40,000 on Tuesday morning well that’s not normal. But what is normal? You, me, the US economy under Donald Trump? Well, those questions are front and foremost as the US Federal Reserve makes an interest rate decision this week. Now given comments by the Fed chair Janet Yellen, it’s almost universally expected to be up. But the discussion about what’s normal in the US economy, growth, employment, interest rates well that will dominate.

Plenty of economists believe this week’s rate rise is the first of four this year. You read it right, four. By year’s end, the US Federal Reserve target range could be between 1 and a half, and 1 and three-quarter percent. Remember last year the range was 0 to a quarter of a percent. Go further forward next year as growth keeps picking up. Those rates could be between 2 and a half, and 2 and three-quarter percent.

In the space of just a little over two years, the US could have experienced ten rate rises, of a quarter of one percent. 10. The markets are anticipating the rate rises. You see the US 10-year government bond rate here. The depths of last year’s worries were 1.4%. They were below that actually. Today almost 2.6%. A little over four rate rises already built in. Here in Australia as I’ve told you, many economists thinks those US rate rises will roll around the world.

Goldman Sach’s says it’s 50-50 chance rates will be higher here by the end of this year. The reserve bank is kind of stuck, our economies not growing as quickly as America. Our employment numbers, February figures due out on Thursday, are much weaker than America’s. It seems unlikely the Reserve Bank is about to raise official interest rates like the US Federal. But money market rates say rate rises are coming eventually. Last year the 10-year government bond rate here got to a low around 1.85%.

They’re now 2.93. Again, that’s four rate rises of a quarter of one percent. This is why the banks also keen to slow down their lending books are more likely to raise rates. Make things tougher for the borrowers. One example, the Commonwealth yesterday said housing investors now need a minimum 10% deposit. That’s up from 5% previously. As I say things are just getting a bit squeezy.

Let’s have a look at the markets this morning. What we can see, Aussie dollar sitting at 75 and three-quarter US cents. And 71.09 US cents. Up a little bit overnight. If we move further more forward on commodity markets. Oil prices $48.47 US a barrel. That should have an impact or rather 41 a barrel. That should have an impact on your petrol pump at some stage in the near future. The Dow Jones index of US shares trading, down by 25 points and here yesterday the all ordinaries index of Australian shares were down by 26 points. Carl? Lisa?

 

Source: ACA Money Minute/Ross Greenwood

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