Rate hike by the Fed a welcome move

SINGAPORE stocks fell and the Singapore dollar weakened along with most Asian assets on the announcement of a widely-anticipated Fed rate hike on Thursday morning Asian time. Higher rates might cause some anxiety, but they are to be welcomed. Rates have been unnaturally low for far too long.

The rate environment is finally starting to normalise, and the Fed is confident about the US economy. After a hike each in 2015 and 2016, the median Fed projection is for three more hikes in 2017. Near-zero interest rates have been fantastic for financial markets in the eight years since the global financial crisis. Stock indices in the US are near all-time highs, and European stocks are not cheap either. Even Singapore stocks, while not expensive, cannot be said to be cheap relative to the past - especially the banks.

But zero interest rates have caused savers and retirees, many of whom are not stock investors, to suffer. People are hesitant about spending money given that their savings yield nothing in the bank. Distortions meanwhile rippled through financial markets, causing asset prices, especially house prices, to be uncomfortably bubbly.