Why We’re Not Expecting Higher Interest Rates Soon

Houses

Waiting for higher rates? Don’t hold your breath.

If you’re waiting for higher interest rates to lift the puny monthly return on your savings, don’t hold your breath.

After last Friday’s disappointing jobs report, the timetable for higher rates got pushed back … again.

Yes, we know that interest rates will eventually be higher.

But once again, conditions in the U.S. economy are looking vulnerable, meaning the Federal Reserve may go back to “wait and see” mode when it comes to hiking rates.

Here’s a quick recap:

The Federal Reserve will probably wait to raise rates until the economy looks strong and robust.

But Friday’s job report may have burst that bubble. The nation’s economy did add jobs, but at the slowest rate in a whole year. In the words of former PIMCO guru Mohamed El-Erian, “the U.S. employment machine notably lost momentum in March.” That raises fears that the economy is temporarily weakening, instead of strengthening.

What’s hurting us? Domestic concerns, weak conditions overseas, as well as a strong dollar, which hurts the big U.S. exporters and U.S. multinationals that power our economy.

“The report is a further reminder of how much more the U.S. economy could — and should — achieve if it weren’t for political dysfunction in Washington and a “do little” Congress that preclude more comprehensive structural reforms, infrastructure spending and a more responsive fiscal policy,” complains El-Erian.

The result: It’s looking a lot less likely that the Fed will start raising rates in June, or perhaps even September.

Here’s how this should matter to you:

You still have time to refinance a mortgage.

If you’re sitting on lots of cash, you’ll need to change your strategy or be happy receiving no return on your assets. (Don’t calculate how much return you’ve lost month after month trying to time this market. It will make you ill).

Bonds still deserve a place in your portfolio. They reduce risk by acting as portfolio ballast, and with higher rates on hold, should continue to provide decent returns.

 

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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