In his regular “Sunday Money” interview on WBIR, Knoxville’s NBC affiliate station, Paul addressed the Federal Reserve’s decision to raise key interest rates. What does this mean for your money as we rapidly approach year-end? Here is a recap of the Q&A:
WHAT DOES A FED RATE HIKE MEAN?
- The Federal Reserve voted unanimously to nudge rates up .25%,
- Showing optimism about the U.S. economy,
- Only the 2nd rate increase in 10 years!
- Employment and inflation nearing target rates,
- Balancing act – not too hot, not too cold.
HOW WILL THIS MOVE AFFECT BORROWING?
- U.S. lenders will raise their rates on credit cards and loans,
- Average 30-year fixed-rate mortgage 4.13% (up from 3.95% last year and rising),
- Lock-in a fixed rate loan or refinance now.
ARE SAVERS CHEERING THE NEWS?
Banks will be slower to raise savings rates but they should follow next year – especially if we get a few more rate hikes in 2017.
HOW DID THE STOCK AND BOND MARKETS REACT TO THE NEWS?
- Both markets drifted lower during the week,
- The stock market rally probably remains intact based on hopes for faster growth:
- new administration’s plans to cut taxes,
- boost spending,
- and cut regulations.
- Existing bond prices move lower when rates rise. However, higher rates are not a good reason to sell bonds:
- Bonds generate income,
- Bond mutual funds will eventually replace older bonds with higher yielding bonds,
- Bonds reduce overall portfolio volatility,
- Emphasize high quality and short- to intermediate-term bonds.
Bottom line? Stay calm and carry on. Stick to the plan. Storms can and will come! Sunshine follows.