The Consequences of a Fed Rate Hike

The Federal Reserve will have its next FOMC meeting on 15-16 December 2015. The financial markets are speculating that Janet Yellen will finally allow a rate hike to take place. This is based on good employment data, especially the ADP jobs report that came out this week. Firms contributed a better than expected 217,000 positions for the month of November 2015. Also, with the unemployment rate at 5%, the Federal Reserve would lose credibility if it didn't raise rates now. I think the Federal Reserve won't increase rates (or just a small increase) because a multitude of other macro indicators (ISM manufacturing PMI, Junk bonds, commodities, Baltic Dry Index, ...) are deteriorating. But let's analyze what the consequences would be for the global economy when the Federal Reserve were to increase interest rates significantly.

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