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Michelle Holmes

February 06 , 2017

The Path to Higher Rates

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The Federal Open Market Committee (FOMC) met last week to determine whether to raise short-term interest rates. As expected, the FOMC left rates unchanged. The FOMC did not indicate when the next rate hike would be. The unsurprising statement from the FOMC reflects the December rate outlook that the Fed is not in a hurry to raise rates. The committee seems content to wait and see how the economy looks closer to the next meeting in March before making an indication of the next interest rate hike.

 

Market participants expect the rate hikes in 2017 to take place at the meetings in which there is a press conference following the FOMC statement. The next FOMC meeting with a press conference is in March. However, the market only predicts a 22% chance of a rate hike at that meeting. The first time the market has over a 50% chance of a rate hike this year is the June meeting. The market has a 65% chance of a rate hike by the June meeting.

 

Both the market and the FOMC predict rising interest rates in 2017.Although the FOMC did not increase interest rates last week, it predicts three interest rate hikes this year. The slow pace of rate increases expected by both the FOMC and the market should provide some relief to the bond market that the worst performance is behind us for the time being. The path to higher rates continues to be slower than previous rising rate periods.

 

How do rising interest rates affect your portfolio? Contact your Security National Bank Wealth Management advisor for an update.

 

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