Monetary policy is
normalizing due to economic improvement.
Provided by Benjamin Bogetto
On March 15, the Federal Reserve raised the benchmark interest
rate by a quarter-point to a range of 0.75-1.00%. The increase was widely
expected, and it represented a vote of confidence in the economy.1
This was the central bank’s second rate hike in three months, and
Wall Street took it in stride, with the S&P 500 rising nearly 15 points on
the day. One reason for that may have been the Fed’s latest dot-plot forecast,
which remained as it was when the last interest rate adjustment was made in
December. The Fed still projects a total of three hikes for 2017.1,2
When the
economy picks up its pace, the Fed responds. In the past several months, job growth and
economic output have been steady, and inflation pressure has built to where
consumer prices are rising close to 2% a year. The central bank thinks economic
growth is now significant enough to warrant a series of small rate hikes.3
As
interest rates slowly rise, retirees & savers could benefit. While higher
rates do imply costlier borrowing, there are also some positives that come with
tightening. Rising rates are good for interest-bearing bank accounts and
fixed-rate investment yields. Higher interest rates encourage banks to lend
more, improving the availability of credit.
Rate increases often promote
dollar strength, meaning the dollar could buy more abroad – a perk for
travelers. Even with slim inventory in the housing market, home sales could now
get a boost – prospective home buyers may not want to wait much longer to
arrange a mortgage. If interest rate adjustments occur two or three times a
year (as they once commonly did), then investors may interpret Fed monetary
policy statements less obsessively and focus on market fundamentals to greater
degree.4
As Fed chair Janet Yellen
commented to reporters after the Federal Open Market Committee’s decision
Wednesday, “The simple message is, the economy is doing well.” Sustained
economic improvement commonly leads the central bank to increase interest
rates.1
This material was prepared by MarketingPro, Inc., and does not
necessarily represent the views of the presenting party, nor their affiliates. This
information has been derived from sources believed to be accurate. Please note
- investing involves risk, and past performance is no guarantee of future
results. The publisher is not engaged in rendering legal, accounting or other
professional services. If assistance is needed, the reader is advised to engage
the services of a competent professional. This information should not be
construed as investment, tax or legal advice and may not be relied on for the
purpose of avoiding any Federal tax penalty. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.
Securities offered through First Heartland Capital, Inc. Member FINRA/SIPC
Bogetto Financial is not affiliated with First Heartland Capital, Inc.
Bogetto & Associates does not provide legal or tax advice. These topics are discussed in conjunction with your CPA, Tax Advisor and Attorney.
Citations.
1 - marketwatch.com/story/fed-raises-interest-rates-by-a-quarter-point-sees-two-move-moves-this-year-2017-03-15
[3/15/17]
2 -
bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=3%2F15%2F17&x=0&y=0
[3/16/17]
3 - nytimes.com/interactive/2017/03/15/business/federal-reserve-interest-rates.html
[3/15/17]
4 - bankrate.com/finance/federal-reserve/benefits-higher-interest-rates-from-federal-reserve-1.aspx
[3/15/17]
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Website - www.bogettoandassociates.com
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St Louis, MO 63127
Website - www.bogettoandassociates.com
Telephone - 314-858-1602
Email - peter@bogettoandassociates.com
10805 Sunset Office Drive, Ste. 202
St Louis, MO 63127
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