How the Fed affects your portfolio

[donheff]

The answer according to Bob French is not much, don't worry about it. Basically, the market does not correlate with the effective federal funds rate. It keeps on doing its random upward walk during periods of rate increases and rate decreases. Interesting article.

 

[ERD50]

Thanks, in keeping with my "do nothing" approach to the markets, I won't even bother reading the article (which is basically saying "do nothing")! It's all good.

It's enough to know it's confirming what many of us think, so thanks for posting.

-ERD50

 

[Jackanory]

Actually, I brought my scheduled rebalance forward by a month in anticipation of the increase ... it appears I needn't've bothered!

 

[FiveDriver]

Some Stocks will be affected positively. Some Stocks will take a hit. I think in the long run, the Fed's approach is a measured one....they have told us what they want to do with rates, and they are doing just that. Mr Market doesn't like surprises or uncertainty.

Now, if you are shopping for a Mortgage (I'm not), or you are financing a car loan (I'm not), or if you are carrying a balance on your Credit Cards (I'm not) -- you will be affected by the increase in Interest Rates at some point.

It affects me only in so far as the next time I renew one of the CD's in my Ladder....Woo-Hoo !!

 

[Fedup]

I don't know, but it's at an old time high. Even higher than a couple weeks ago when the Dow exceeds 21,000.

 

[VFK57]

I am surprised that both Stocks and Gold went up while higher interest rate usually push both of them down. Some pundits say it is expectation / fear of higher than normal inflation what cause it.

 

[mathjak107]

the fact was that raising the short term rates which help keep inflation in check coupled with the fed statement sat well with the gold and bond markets

the Fed's quarterly economic forecasts include a none-too-impressive 2.1% estimate for GDP growth this year and next, and a slight decrease for 2019. And, most importantly for bond investors, the central bankers see inflation hovering at or just above 2%, and that was taken as a signal to buy.

in fact since the day of the rate rise last week was the biggest gain i ever saw on my portfolio in a week . gold and long term treasury bonds along with stocks all moved in the same direction . it was impressive , but also scary when you think that this 40% equity model i use which is supposed to be fairly conservative saw such huge dollar moves .

 

[audreyh1]

I would think expectations of keeping inflation in check would make gold go down, not up!

 

[mathjak107]

except gold does not respond to lower inflation levels . it only responds when the dollar weakens from it.

so reigning in low inflation expectations even lower are not going to hurt gold. most of golds moves will be based on the dollars moves and greed and fear .

 

[VFK57]

What is interesting that most banks did not increase the CD rates so far, may be more time is needed.

 

[mathjak107]

it is like gas prices but the reverse. when gas prices go up everyone goes up . when they fall you don't drop right away . how fast you drop depends on the competition .

money market rates are getting high enough so they cover expenses. most were being subsidized by the fund family's to hold that buck value .

so most of the increase went to getting them back on their own again .

 

[Dash man]

What is interesting that most banks did not increase the CD rates so far, may be more time is needed.

Most changes occur at the beginning of each month, not in the middle of the month. So we'll see if there is an effect in two weeks.

 

[eytonxav]

If the fed started to rapidly adjust rates, all bets are off.

 

[VFK57]

Most changes occur at the beginning of each month, not in the middle of the month. So we'll see if there is an effect in two weeks.

If banks need your money for business, they would not wait as the competition in this business is high.
On the other hand if the Feds increased the rate not because of rapidly growing wages, rapidly reduction in trade deficit, growing GDP well over 3% etc but because of different reasons (such as returning home large amounts of US$ not needed for the world trade at previously needed amounts) then we will not see a competition for your money between the banks.

 

[Mulligan]

If banks need your money for business, they would not wait as the competition in this business is high.

On the other hand if the Feds increased the rate not because of rapidly growing wages, rapidly reduction in trade deficit, growing GDP well over 3% etc but because of different reasons (such as returning home large amounts of US$ not needed for the world trade at previously needed amounts) then we will not see a competition for your money between the banks.

I read an article in Sunday paper discussing the fact that CD rates may not move too much. Article stated that most banks are just sitting on too much cash already and do not need to compete for deposits. They did mention the caveat that online banking and easier availability for consumers to move cash around and find better rates could be a wildcard though.

 

[audreyh1]

What is interesting that most banks did not increase the CD rates so far, may be more time is needed.

The prime rate for lending changes immediately.

But otherwise, yes I agree, banks have been very very slow to increase CD and high yield savings rates. Perhaps partly because these rates never got down as low as the Fed Funds Rate got in the first place. Perhaps once the rate goes above 1% you'll see these CD rates creep up, but I bet it will be slow unless some of the banks decide they need deposits!

 

[audreyh1]

it is like gas prices but the reverse. when gas prices go up everyone goes up . when they fall you don't drop right away . how fast you drop depends on the competition .

money market rates are getting high enough so they cover expenses. most were being subsidized by the fund family's to hold that buck value .

so most of the increase went to getting them back on their own again .

Money market rates did increase, finally!, at the end of last year. Wow - they are paying 0.25-0.35% now! Big jump from the <0.1% rates they were paying for years.

 

[VFK57]

Money market rates did increase, finally!, at the end of last year. Wow - they are paying 0.25-0.35% now! Big jump from the <0.1% rates they were paying for years.

+1 The highest 5yr CD rates are at 1.8% to 2.3% while Feb 2017 official inflation was at 2.7% and experts expect it rising higher.

 

[Hyper]

cpl months ago a news email I received from one of our senators was that he was trying to push the Fed to NOT raise the rates for the reason that it will in turn raise the cost of the US to repay it's debt. My response back to that senator was : so in his opinion it's ok for some taxpayers to pay once, but twice for their incompetence. The first for their failure to control spending, the second for keeping rates lower than they should be to pay off their debt thus hurting savers.