Fed's John Williams sees three, 'maybe even more', rate hikes in 2017

If inflation picked up, that would solidify expectations of a total of three rate hikes and, according to Evans, it could be four times if things really pick up.

In fact, real interest rates around the world are poised to fall in 2017 as inflation outpaces on coming hikes in benchmark interest rates, creating a technical support that's expected to be a boon for the global hunt for yield.

While rising interest rates could slowly chip away at bond values, losses could be more dramatic in worse-case scenarios.

These include implementing regulatory reforms that lower the unnecessary government burdens on the economy, expanding global trade opportunities that have benefited both USA businesses and consumers, and implementing tax reforms that simplify the overly-complex and overly-punitive corporate and personal income tax systems.

An interest rate increase is the central bank's effort to guard against inflation as the economy improves, said David Cadden, a professor emeritus at Quinnipiac University's School of Business. "But if there are surprises or shocks to the system, rates could rise much faster and higher". "Despite the slight rate increase, the cost of money is still at a historical low".

A rising rate environment has caused some to question the wisdom of holding bond investments. Credit card companies typically mirror the Fed. Don't bank on seeing an increase in savings account rates.

Second, lending standards: Higher interest rates may provide lenders with more of an incentive to make loans - and a little bit of a cushion against risk - which will very likely loosen some of the incredibly tight lending standards that have prevented millions of credit-worthy borrowers from getting mortgages over the past few years. It hasn't so far. Well, the normally secretive Federal Reserve has been uncharacteristically open about future policies mainly to reassure the public after the recession years ago.

The one-month Treasury rate, two years forward - a proxy for the Fed's terminal rate - has already discounted about five increases of 25 basis points over the next two years and remains nearly 30 basis points below the December highs, with inflation well-contained for now.

Since the November election, the interest rate on the 10-year Treasury bond has jumped from 1.88 percent to 2.5 percent. Inflation above the Fed target would compensate for the stagnant consumer prices of the previous years, balancing the longer-term inflation average at the targeted 2 percent.

  • Santos West