Interest rates are finally going to rise

By Mike Jones, posted June 18, 2015

Interest rates are finally going to rise.  As I write this report I am listening to a press conference with our new Chairperson of the Open Market Committee of the Federal Reserve (aka the Fed), Janet Yellen, who is discussion why the Central Bank of the United States of America is finally approaching "lift off."  Well, sort of.

The news coming out of this month's meeting at the Fed is that interest rates are going to rise and will probably be raised twice this year.  If all goes according to script, the Fed will raise interest rates by .25 of 1 percent and my guess is that they will do so in September and in December.  That will put the benchmark interest rate to 0.625% this year.  Mrs. Yellen also announced that next year the Federal Reserve would expect rates to climb to 1.625% (which is a little lower than the March forecast of 1.875%).

Now for the fun part: What does this mean to you?  Well, if "you" are an investor this means one thing, and if "you" are a saver this means another.

As an investor:  Both the stock and bond market like but don't love this news.  The markets are not ecstatic about higher interest rate. Cheap money, and I mean really cheap money, has fueled one of the best runs for stocks and bonds the U.S. has ever seen.  We must all keep in mind that the reason the interest rates went so low and stayed so low was as an elixir to come to the aid of the financial system on the heels of the financial crisis of 2008/2009.  What the Fed is now saying is that they believe their patient is well enough to make it on its own going forward.  They also gave the markets a little bit of good news when they announced that higher rates would not mean the level of rates from the past and that they would surely take their time in raising rates.

As a saver:   Whoop-de-do.  I'm sure that .5 to 1% more from a savings vehicle will be appreciated, but this still means that savers will be earning some of the lowest yields that have been available since WWII.  After the near collapse of the financial system seven years ago, no central bank wants to do anything to jeopardize the balance sheets of financial institutions.  Bottom Line: Savers will eventually earn a little more return on their money but will not come close to earning what they envisioned for their savings dollars during their years of saving and planning.  

Mike Jones is Managing Director / Investing Group of Argent Advisors, Inc. Email him at mjones@argentadvisors.com. Write to him at 500 East Reynolds Drive, Ruston, LA 71270 or call him at (318) 251-5844. The opinions of any single advisor do not necessarily reflect the opinions of Argent Advisors, Inc.  No forecasts can be guaranteed.  Argent Advisors, Inc. does not offer tax, insurance or legal advice.  The information contained in this column should not be construed as a substitute for personalized investment, tax, insurance or legal advice.