Against everyone’s predictions, the Federal Reserve has decided to raise interest rates in the recent December Federal Reserve meeting. It was also mentioned that Fed may plan to raise interest rates three times in the year 2017. In my previous post (Why Fed Decides Not to Increase Interest Rate), I mentioned one of the factors Fed decided not to raise interest rates in the previous meeting was the Presidential Election. It seems that the Trump victory did not have any impact to the decision made by the Fed.
Chairwoman Janet Yellen cited higher inflation and a lower unemployment rate were reasons Fed decided to raise the interest rates.
What I think will be the Impact of Fed Interest Rate Hike
#1 Higher Mortgage Rates
By raising the interest rates, the Federal Reserves makes it more expensive for banks to borrow. Banks in return may pass the higher costs to customers. Of course, being in competitive market like Singapore, there is a possibility of a price war breaking out between banks to attract home loan customers by offering lower interest rates.
#2 Lower Certificate of Entitlement (COE) Prices
With a higher borrowing rate, there is a small possibility we may think twice before taking up a car loan. This may cause current COE prices to fall. That is what I think.
#3 Strengthening of US Dollar
Yes, the US dollar is suppose to strengthen as the policy of raising interest rate is to curb inflation. This will impact those who loves buying and importing goods from US. On a side note, Amazon is coming to Singapore.