Possible us government shutdown looms: will rates rise in 2015?

Photo: Epicharmus

Another possible government shutdown is looming in the US, which could see a rate rise delayed until 2016 - despite positive comments to the contrary from Janet Yellen.

The Fed Chair told the University of Massuchesetts today that the majority of the Federal Open Market Committee expected rates to be increased this year, with the US central bank chief describing the possible hike as "likely appropriate".

The upbeat comments follow a decision by the Federal Reserve last week to hold rates at historic lows.

Ashley Owen, head of investment strategies at AES International, though, warns of another potential factor in the drama: "Once again the US Government looks like it could be ‘shutdown’ next week, with Democrats and Republicans disagreeing over the funding of the controversial government-sponsored family planning clinic, Planned Parenthood.

"When a shutdown last occurred in October 2013, the economic impact was relatively small, with an estimated 0.6 per cent knocked off the country’s fourth quarter GDP. However, the 16-day event caused major disruption for millions of government employees as well as businesses and services which rely on government contracts.

"The uncertainty that it brings – will it happen, how long will it last if it does – will add to an already unsettled market. This time around, the world’s economic position is arguably more unstable than in 2013, with concerns of a slowdown in China and emerging markets just last week adding pressure on the Fed to halt plans to raise interest rates.

The Fed's decision saw the dollar dip in value last week, although some commentators predict that the US dollar has peaked earlier this year and could see a gradual decline in the near future. Yellen's comments, though, have given the US dollar a boost once more.

The speculation continues.