Tag Archives: federal reserve

How Higher Interest Rates Will Definitely Affect You

The Federal Reserve has been capping off interest rates and keeping it near zero since December 2008. This year, 2016, everything will change. The Fed is finally hiking interest rates and you should be concerned because it will definitely affect you.

The hike is an anticipated event that has been looming in the market since late 2015. It has been steadily lowered since 2006 and is kept low to help the US economy. Now that it has, the central bank is now ready to bring it back to normal levels, historically-speaking. Because it has been low for so long, traders, investors, and other market participants has grown accustomed to it. That’s why so much preparation is now being done and you should get ready as well. Here are some ways that this interest hike will definitely affect you.

Higher Returns
There are two kinds of people in this world: the borrowers and the savers. For people who have been putting aside money on saving accounts and those who have availed of certificate of deposits will finally given significant returns instead of the current negligible interest cash returns. Savers will get to enjoy better profit from their savings and with them are the investors of bank CDs and money market accounts. So if you’re a saver, get ready to profit. On the other hand, people who are borrowing money would have a harder time getting loans because it will naturally be more expensive. So if you’re a borrower, then prepare for higher borrowing costs.

Impact on Different Stocks
The increased rates will unquestionably affect stocks but these effects will vary depending on what industry the stocks will belong to. Some will benefit while others will suffer. On the winners side are the bank stocks with emphasis on community banks. Higher rates are also beneficial for institutions with small capitalization. The reason for this boost in bank stocks is because more core deposits will go in them thus predictably increasing their performance. More stock sectors and investments that will benefit are consumer discretionary, physical commodities, energy, real estate, and technology. On the other corner where higher rates will hurt are consumer staples, utilities, and a handful of REITs. So if you are an investor that has a number of stocks in various sectors, consider the impact it will have on your investments and adjust accordingly.

Increased Borrowing Cost
One obvious effect of higher interest rates is increased borrowing cost. It will directly affect loans that are associated with short-term and floating-rate debt. Consequently, homebuyers will also feel the increased rates whether they opt for a fixed-rate or a floating-rate mortgage. Basically, all loans will be affected so you must prepare yourself now.

The Federal Reserve’s impending interest rate hike will affect you one way or another. The best way to take advantage of this coming change is to analyze your portfolio, check your savings and loans, and adjust them accordingly.

Federal Reserve seen to drop pledge to maintain low rates

Economists are expected the Federal Reserve to change their language regarding monetary policy and let go of their previous pledge to keep interest rates low for a “considerable time.”

According to 68% of economists surveyed by Bloomberg News, the US central bank is likely to make use of the term “patient” when describing its intentions for monetary policy going forward. The Federal Open Market Committee, which meets starting today until tomorrow, is seen to hike up its interest rates in the middle of 2015.

Officials of the bank are currently discussing the timing of when to tighten its policies are expected to make use of favorable jobs data bringing them close to achieving the Fed’s goal despite falling prices of crude oil that are preventing inflation from picking up. In the US, 321,000 additional workers were hired in November, the highest number in nearly three years, while unemployment fell to 5.8% to hit its lowest in six years and approach the Federal Reserve’s target of between 5.2% and 5.5%.

59% of economists forecast that a drop in unemployment will be one of the factors emphasized when debates on rate increases begin, while 41% said that inflation lingering below the target level will be enough to delay the timing. The central bank has held its borrowing costs to near zero since December 2008 even after ending its final round of quantitative easing last October.

Committee members are expected to make an announcement and release updated economic data tomorrow afternoon which will be followed by a press conference led by Fed chair Janet Yellen.

The US economy is predicted by economists in a separate survey conducted by Bloomberg News to grow by 2.9% in 2015, the best rate in ten years.