The Federal Reserve, our nation’s central bank, raised interest rates last week by 1/4 of a percent and suggested that two more increases are likely in 2017.
The Federal Reserve believes the U.S. economy is no longer in need of the same level of help (in the form of lower interest rates) as it was a few years ago. At Simply Money Advisors, we agree the economy is in much better shape, but we also believe the Federal Reserve may be slower to raise interest rates than they’re letting on. A few reasons there may only be one more interest rate hike this year include: economic growth is still modest, inflation pressures are absent, and the government is acting slowly in passing tax cut and infrastructure spending plans.
Currently, there is a 57% chance of another interest rate hike by June. This week's economic data releases are few, but they may provide some key economic insight. The existing and new home sales will reveal how homebuyers are reacting to the slightly higher mortgage rates. The data about durable goods (items you don’t have to purchase frequently, like a refrigerator) will show if the optimism from recent surveys is resulting in real demand for goods.
The Simply Money Point
While some short-term turbulence is expected as the markets adjust to slightly higher interest rates, both stocks and bonds have often moved higher when the Federal Reserve is in the midst of raising interest rates. When the Federal Reserve is raising interest rates, the economy and company profits are usually growing. These two things are good for your investments.