For about ten years, the Federal Reserve’s key interest rate remained at an all-time low. They actually dropped the rate to zero, in response to the financial crisis of 2008, where it remained throughout the Great Recession. Then, finally, in December 2015 the Fed decided to raise rates ever-so-slightly, in response to a strengthening economy. Now, a year later, we are seeing a second rate hike of 0.25 percent, and predictions of more to come throughout 2017.
Unemployment fell to 4.6 percent in 2016, and jobs have grown for 74 months in a row now. After speculating about a rate hike for most of the year, the Fed finally followed through in December. They believe consumers and businesses can afford higher interest rates, a good sign of an improving economy.
The rate hike was small, but we might be seeing at least one more this year (and many experts predict we might actually end up with three or four more increases by the end of the year). That’s because President-elect Trump has promised to spend billions on national infrastructure, prompting greater demand for many goods. Inflation is likely to accelerate, and the Fed will likely combat it by raising interest rates accordingly.
Generally speaking, rising interest rates are a good sign of a strengthening economy. But of course, the results can vary for individuals. If you’re heavily invested in options that hedge against inflation, you might consider how well those investments will perform when interest rates rise. In some cases, re-balancing your portfolio according to economic predictions could be helpful to your long-term growth.
Because each situation is unique, don’t rush to judgment. Schedule an appointment with us first, and we can discuss your investment strategy and make recommendations to keep you balanced as economic conditions change.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.