The United States Federal reserve has moved closer to an interest rate rise this month.
In September the USA’s central bank, the Federal Reserve (the ‘Fed’) surprised a fair few investment ‘experts’ by deciding not to increase short term interest rates. The Fed’s Chair, Janet Yellen, had earlier been dropping hints that September could see ‘lift-off’, thereby wrong-footing some pundits.
In a statement issued after the September decision, the Fed said that “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” Decoded from Fedspeak, this was interpreted as Yellen & Co being concerned about the international impact of China’s falling trio of growth, share prices and currency.
The Fed’s last meeting, at the end of October, dropped the reference to global issues and made one other important change. It removed the usual vague references about the timing of rate rises and specifically highlighted a timescale with the phrase “In determining whether it will be appropriate to raise the target range at its next meeting…”
All eyes are now on 16 December and the press conference after that next meeting. If interest rates stay on hold, there could be some difficult questions for Ms Yellen to answer. On the other hand, if rates do rise, the reaction of the markets could be quite volatile in the run up to Christmas. This underlines the importance of the layers of diversification that we build in to client portfolios, to help protect the investments we manage from some of this volatility.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.