Fed Rate Hike Expected on December 16

At the Federal Reserve’s meeting on December 16, interest rates are expected to be raised. Fed chairwoman Janet Yellen insists that the start of the rate-hiking cycle – almost 10 years since interest rates were last increased (in June 2006) and seven from when the Fed slashed rates close to 0% – will be gradual. This is so as not to rock the recovery which remains a little fragile. Businesses slashed inventories in Q3, from a US$113.5bn gain to only US$56.8bn, preferring to rely on existing stocks to meet demand rather than ramp up production. The main impetus to growth came from domestic demand. Investment did slow, from 4.1% (q-o-q annualized) in Q2 to 2.1%, underscoring firms’ ongoing caution. However, consumer demand was spurred by low oil prices and inflation, giving rise to a 3.5% annualized surge in disposable income. This helped personal consumption to advance by 3.2%.

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