10 November 2014 - The Federal Reserve announced today the formal end of its $3.7 billion Quantitative Easing bond purchasing program, while planning to keep interest rates constant for a ‘considerable’ period of time.
The Fed’s former Chief, Ben Bernanke once mentioned that interest rate increases will be brought forward when the U.S. jobless rate falls below 6% and when annual inflation exceeds 2%. Given that the latest US unemployment rate and the inflation rate are 5.9% and 1.7% respectively, the market is keeping a close eye on economic statistics. According to a poll by Thomson Reuters, Wall Street’s biggest banks remain convinced that the Fed will impose the change in June 2015.
In Hong Kong, property investors appear prepared for the news of rate increases, while banks have long planned for risk management measures and stress tests. As a result, it is expected that the property market will not be severely affected when interest rates increase.
"Although impossible to pinpoint when the Fed will increase rates, it is certain that it's on the horizon." OKAY.com's CEO, Joshua Miller, commented. "An increase in interest rates, if rates become extremely high, eventually leads to a market downturn as borrowing becomes prohibitively expensive. However, the first phase of rate increases are a result of an improved economic outlook, hence is typically accompanied by a recovery in the property markets. It's clear that the global economy is improving (particularly in the U.S.), so unless interest rates move past the 6-7% mark, it's a positive sign for the real estate market overall. The recent significant rebound in transaction volumes shows the market is already beginning to react in anticipation."