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.
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.