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The Federal Reserve Raises Benchmark Interest Rate

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Monetary policy is normalizing due to economic improvement.

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

Gerard Gruber may be reached at 203.454.3377 or GGruber@HaydenWealth.com

Citations.
1 - marketwatch.com/story/fed-raises-interest-rates-by-a-quarter-point-sees-two-move-moves-this-year-2017-03-15 
2 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=3%2F15%2F17&x=0&y=0 
3 - nytimes.com/interactive/2017/03/15/business/federal-reserve-interest-rates.html 
4 - bankrate.com/finance/federal-reserve/benefits-higher-interest-rates-from-federal-reserve-1.aspx 


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 and investment advisory services offered through Geneos Wealth Management, Inc. Member FINRA/SIPC 

Gerard Gruber joined Hayden Wealth in 1997 as the Chief Investment Officer. Gerard has held management positions in a variety of disciplines, including operations, technology and finance. Prior to joining Hayden Wealth, Gerard was an Assistant V.P. at Sims Mortgage Fundng. Gerard received a Bachelor of Science degree in Business Administration from Western Connecticut State University. He is registered as a General Securities Rep and agent, holding several licenses through the Financial Industry Regulatory Authority (FINRA). Gerard is married with one child and lives in Trumbull.

Regulatory Disclosure: The information on this website has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. This website is neither an offer to sell nor a solicitation to buy any securities. Vern Hayden and Gerard Gruber offering Securities and Investment Advisory and Financial Planning service through Geneos Wealth Management, Inc, Member FINRA/SIPC.  Investments are not FDIC insured. Investments are not deposits of the financial institution and are not guaranteed by a financial institution. Investments are subject to investment risks including loss of principal amount invested.