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3 Reasons Why Fed Postponed Rate Hike; What You Can Do
Aspire, Investments | 18 September 2015
By: Vance Wong
Articles (74) Profile

Eyes from all over the world were on the US Federal Reserve and the committee members that attended the latest Federal Open Market Committee (FOMC) meeting. Once again, the Chairwoman Janet Yellen announced another postponement of the rate hike.

While the possibility of a rate hike is still open until the next meeting on October 27-28, some economists are saying that the Fed will wait till after the December meeting instead. The question right now is, why is the Fed waiting when the US economy has improved “according to expectations”?

1. Possible Economic Spillover From Outside US

The US economy is indeed improving and the Fed expressed optimism about growth and forecasts in the upcoming months. However, the Fed has concerns about the rest of the world, considering the recent European Central Bank (ECB) monetary easing and China’s stock market rout.

Furthermore, the jobs market and inflation are still not up to expectations, which would most probably improve by the end of year, considering the recent data.

2. Global Weakness Too Much For US Economy

Many might think that one of the main problems preventing the rate hike is the overall weakness of the global economy. Another way of looking at it: the US economy is strong, but not strong enough to withstand the overall global weakness.

Nevertheless, it is noteworthy that the Fed is considering the external factors like other emerging markets and the global economy at large as part of their decisions. In the past, the Fed had barely looked at the global economy as a whole and made decisions just based on the US economy.

3. US Housing Market Still ‘Depressed’

Although the housing market does not constitute a large percentage of the US economy (about ten percent), Chairwoman Yellen did mention that an improved housing market would signal a surge in consumer and business spending.

Furthermore, a rate hike would mean that mortgages will be more expensive. More expensive mortgage rates would mean even weaker housing and thus lowered consumer spending as well.

Buy High Yield REITs Now

Regardless of how ‘depressed’ the US housing market is looking right now, the Fed expects it to improve in the coming months. This is considering that the job market and income growth will improve, and they will, according to recent data. Furthermore, if US’s economic recovery maintains at the current rate, it would look good in the upcoming months.

As such, investors can look into buying high yield Real Estate Investment Trusts (REITs) now. The high dividends and flexibility to move in and out of the market would prove to be attractive, especially during the current climate of high volatility.

Still worried about when and how much would the US Federal Reserve hike interest rates? Do you have burning questions that you want to ask regarding the China economic slowdown and SHCOMP nosedive in June? Are you confused if any of the external factors from other countries in Asia will affect your Singapore stocks portfolio?

Catch renowned investors and speakers with rich experience in the stock markets, who have had witnessed multiple stock market crashes and global recessions over the years at Shares Investment Conference 2015!

Speaker profiles

1. Dr Chan Yan Chong, a renowned investor with more than 25 years of experience and the MBA programme director & associate professor of business school at the City University of Hong Kong.

2. Kevin Gin (CFA), the Founder and Principal of Alpha Capital. He was the former COO for CITIC Securities, Head of Singapore and Regional Real Estate Research for Kleinwort Benson Securities Asia (now part of Credit Suisse) and Head of Greater China Property Research with Yuanta Securities (Hong Kong)

3. Louis Wong, one of the most experienced fund managers in Hong Kong. He has over 25-years of solid experience and track record in the financial market. He was awarded Best Financial Analyst for 3 years by the Putonghua Channel of Radio Television Hong Kong and is also a part-time instructor of several investment courses in various Hong Kong universities.

4. Daniel Loh, an investment coach that specialises in equities and derivatives trading, he appears regularly on local TV financial programmes like “Good morning Singapore” and “Hello Singapore”.

With a Communications background, Vance has the passion to write with a purpose - to provide content supported with substantial evidence to vested readers.

Please click here for more information about this author.

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