Investors not fazed by likely hike ininterest rate

[William Hull]

The Federal Reserve is expected to raise interest rates next Wednesday. This will mark the third time it has done so in fifteen months, and is an indicator that further increases may be in store. In the past, an increase in the rate caused investors a great deal of worrying. However, the current reaction from investors is less sanguine. Instead, Wall Street remains excited and confident. Investors are still thrilled over the possibility of tax cuts, reduced federal restrictions, and increased spending on transportation and roads expected with the election of Donald J. Trump in November's presidential election. Investors are 91% sure of a rate hike given a February report showing 235,000 new jobs and a drop in unemployment to 4.7 per cent. Investors are not as worried about the rate hike now, as the country's economy is better and is almost at one hundred per cent employment. An economist at Moody's Analytics noted that in 2013, investors were worried about the state of the economy. Now, they are more confident in the ability of the economy to handle rate hikes. Indeed, economic experts predict the country can withstand four rate increases this year, versus the old estimate of three. Rate hikes in 2018 are expected to slow down activity.

Key Takeaways:

• The Fed's benchmark rate is historically low for the year 2016
• The benchmark rate ranges from .5-.75% after modest increases in the year
• A continuation of hikes in 2018 will result in a downward turn for economic activity

"The Fed’s benchmark rate, after modest increases in December 2015 and December 2016, ranges from 0.5 percent to 0.75 percent, quite low by historical standards. But if the Fed ends up raising rates three or four times this year and adds more hikes in 2018, its benchmark rate would be left at a level that might start to dampen economic activity"

Read more: http://www.journalgazette.net/business/Investors-not-fazed-by-likely-hike-ininterest-rate-18243731