The actual rate hike from US Federal reserve poses much lesser risks than its anticipation.
In anticipation of a rate hike from US Federal reserve has pushed US Dollar to its highest level in more than a decade and emerging market economies have taken massive hit to their currencies, bonds and equities. Even developed market peers have taken large hit against Dollar. Stronger Dollar helped in commodities slide along with other factors.
However, actual rate hike from FED may not be uglier.
Why?
- In spite of financial market turmoil, global economy is growing and giving ample signs that it will continue the growth path going ahead.
- FED chair Janet Yellen rightly pointed out that it is not the one rate hike that matters but the entire path. Saying that it can also be infer that this year's rate hike from FED is going to be one of the most dovish over the guidance ahead.
- One 25 basis points hike from FED unlikely to derail emerging economies further after the devaluation the countries have gone through. Emerging economies face much greater risk from China than US rate hike now.
