Interest payments could become one of the federal govt's biggest line items

The CFTC data measure activity in the Treasury futures market, but exclude other derivative products including options and interest-rate swaps. Nonetheless, CFTC (a U.S. market regulator) figures on Friday showed the market is still structurally long on the dollar, with long positions sitting at their highest level since January, which will prevent the dollar falling much further from here. Not only was the Fed decision unanimous, but voting indicates that the members see an average of not two, but three rate hikes in 2017. At a rate of a 25 basis point hike per meeting, this translates to six rate hikes next year. The Federal Open Market Committee (FOMC) raised the benchmark interest rate to 0.75 per cent.

The Fed has been eager to raise rates for a long time, but conditions never cooperated. Most times, home equity loans have floating rates, so that is one area to check always and evaluate. This caused some of the global economic turmoil at the beginning of this year, and most central banks set off on a policy of weakening the United States dollar, which subsequently meant the Fed pulling back on its interest rate proposals.

Ms. Yellen took note of the rising stock market and didn't want to comment on the level of stock prices, but when pressed, said that stock valuations were within a normal range. A bond's yield moves inversely to its price.

Bond yields, which move inversely to prices, have shot higher since President-elect Donald Trump upset his Democratic rival Hillary Clinton in the November 8 election. This policy means that it would be maintaining monetary accommodation and has no plans to shrink its balance sheet by selling any of the over $4.5 trillion in securities it holds.

Making it only the second rate rise in the past decade, the last rate rise coming a year ago in December 2015 when rates moved from a record low 0.25% to 0.5%.

Down the road, if five-year fixed rates normalize you will have the option of converting your five-year variable rate to a five-year fixed rate at no cost. These options will buy you some time for Canadian bond yields to fall further behind their US counterparts as our economies progress along very different trajectories as expected (which I recently wrote about here).

One of the unintended consequences of the Federal Reserve Bank keeping interest rates so low for so long is that conservative investments such as savings accounts, bank certificates of deposit and Treasury bonds have fallen woefully short of rewarding savers with a decent income as the key federal funds interest rate hovers near an all-time low of between 0.25 and 0.50 percent.

The FOMC is also anxious about the current low unemployment rate of 4.6 percent, the lowest the last 40 years.

We also have the issue relating to the new Trump presidency and what that means to the global economy next year. But while exporters will earn more shillings from their products, there may be net harm done to the Kenyan economy as we are net importers, which means products procured from overseas will become more expensive. On the converse, should the fiscal policy and stimulation promised by the new government not thicker then we potentially face a scenario where the dollar is significantly overpriced, which again could chaos in the financial markets.

Since Donald Trump was elected, the stock market, interest rates and the dollar have all marched higher.

The US Dollar Index tracks the US dollar vs. the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona and the Swiss Franc.

The PSEi is now down 1.5 percent since the start of the year.

Moreover, the average return from October to January is 9.2 percent.



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