Don’t Fear The Rate Hike

janet yellen 2

Federal Reserve Chair Janet Yellen

Odds are that the Federal Reserve will raise rates tomorrow afternoon by another quarter point (0.25%) in response to improving economic conditions and a robust job market.

Wall Street is eyeing three or four rate hikes in total in 2017, although 2015 and 2016 estimates for multiple increases proved wide of the mark. For that reason, it’s best to take interest rate predictions with a big grain of salt. If economic growth falls flat, later rate increases will be pushed back into 2018.

So far, the equity markets seem to be taking the prospect of higher rates in stride. They’re undoubtedly looking at the silver lining of rate hikes, which is the Fed’s growing confidence in U.S. economic prospects and firming prices.

“Getting the federal-funds rate closer to normal isn’t a death knell for risk assets anymore,” said Jason Trennert, chairman and chief executive of Strategas Research Partners LLC, in an interview with Steven Russolillo of The Wall Street Journal. “The Fed has a long way to go to get from super accommodative to even just accommodative.”

Some observers say higher rates should actually be “welcome news to Baby Boomers preparing for retirement.”

While rates still remain far below normal, conservative investors should welcome the chance to earn more income on bank deposits, CDs, bonds and other interest-sensitive instruments. Since the 2008 financial meltdown, retirees have “earned less on their savings than any other time in recent history,” said Michael Rubin, author of “Beyond Paycheck to Paycheck.”

The Takeaway: Higher rates signal potentially higher income on the safer, low-growth assets many retirees prefer.

See what years of unusually low rates have cost savers:  Quote Of The Week: The High Cost Of Low Interest Rates

 

 

About Mari Adam

Mari Adam, Certified Financial Planner™ and President of Adam Financial Associates Inc, has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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