The implication of US Fed interest hike

The background of the news is US Federal Reserve announced an increased of federal interest rate of a quarter percent point (0.25%) and will increase it gradually in the next two years last Wednesday (20151216). The main reason behind the hike is the US Central Bank is feeling confident that the US economy has recovered from the past economy crisis and the unemployment rate has been halved from its peak since 2008/2009. Also, this is one of the efforts that the US government trying to cool down the economy heat and stabilize the inflation rate.

For more information of the news, the following link is one of the news I read to get a glimpse of the topic and if you find it is not enough, simply Google related key words and you will be fed with tons of news.

CNN Money

After getting the basic idea of what is going on, let's discuss the potential implications of this hike in general.

1. Pressure on countries who have USD-denominated debt.
Imagine countries who have large debts and the repayment is in USD, how much extra money do they need to fork out just to pay for the interest? A 0.25% may seems little at the moment. But as the interest rate increases gradually, the financial pressure it will put on those countries will be a great deal.

2.  Cheaper property owing to fast selling?
As the interest rate hiked up, property investors will need to take out more money for loan repayment. Some investors may need to sell some of their properties in order to cope with the hiked interest.

3. More investors leaning to buy bonds.
Higher interest rate meaning better return of investment in bond market. Bond is an alternate investment means which provides a steady return to people with lower risk appetite.

4. Will money flow back to US?
As US introduced higher interest rate, global investors may pull their money out from other countries and invest in US market to get better investment return.

Actually, the implications listed above will have direct impact on US themselves. Unfortunately, I have not found information to show what are the direct effects on Malaysia in near future. I will follow up on this event and update the post as and when I have more info.

The bottom line
As a major economy body in the current world, every decision made by the US will have a global impact and understanding the trend will surely help one to make better decision in investment.

Here is another link that provide a good insight of the event. The news is broken into questions-and-answers form and it will be an easy read for everyone.

Financial Times