An Interest Rate Increase

Yesterday, the U.S. Federal Reserve Board (FED) raised the “fed funds rate” 0.25%. You may have noticed that this was “in the news,” as the FED has kept the fed funds rate near 0% for about seven years.

As you’ll likely recall from our conversations and communications, we at Laurel Wealth Planning have been expecting an increase in the fed funds rate for some time. Because of this, we have been recommending several bond investing strategies, where suitable, that fit this environment:

  • Shorter term bonds that mature regularly catching the potentially higher interest rates.

  • Global bonds of companies that are in countries that are at a different point in their interest rate life cycle. For example, the European Central Bank is doing the opposite of the FED right now.

  • Bond types, such as “floating rate,” that tend to do well in a rising interest rate environment.

Is the FED likely to continue to increase the fed funds rate? We think so, but modestly and over time. If our outlook proves correct, these modest increases can be positive for many types of equities (stocks) and only modestly impact bonds. For example, yesterday (Wednesday, Dec.

17th), when the rate increase was announced, the Dow Jones Industrial Average increased 200 points (the Dow Jones Industrial Average is comprised of thirty of the largest companies in the U.S.).

If you’d appreciate details on this topic, Dr. Scott Brown, Raymond James Economist, you can peruse his thinking in this write-up.

Please let us know any and all questions. We hope that your holiday preparations are going well and that you have an enjoyable week or two ahead. For myself, after three months as an empty nester, my family will be home! As is so true for many of us, being with our friends and family can be the best gift of the season.