Five Reasons Not To Fear Of Interest Rate Hikes

When will the Fed hike rates?

Investors these days are obsessed with interest rates. We are here to calm your fears.

Markets and interest rates move in cycles. Here are five reasons why you do not need to get all stressed about the upcoming rise in interest rates, whenever it finally and officially occurs.

Uncertainly will finally be removed

Markets hate uncertainty. Interest rates were crushed during the financial crisis, which investors have always been wondering about when they are going to go up again. Once the Fed raise rates, investors might be able to breathe again.

A rate increase is already priced into the markets

Traders always pay attention to interest rates, and every time the market drops one percent, the pundits blame the reason for that as the fear of higher interest rates.

Stock markets, however, are exceptionally good at anticipation. We think markets have fully priced in a few rate hikes already, and are unlikely to crash, or even drop much, when a rate hike does in fact occur.

Home Sales Might Accelerate

If homebuyers anticipate a series of rate hikes, they might want to lock in a low-rate mortgage today and start buying. If this occurs, housing could do very well with the follow on trickle down positive impacts to the rest of the economy.

Corporations might borrow more and go shopping

Knowing rates are heading higher, corporations, which are missing on tons of cash, might decide to raise money by selling long-term bonds. Combined with cash, new debt financing might see a whole new level of takeover activity, in all sectors.

If corporations see economy expanding at the same time as the interest rates increase, they will be even more inclined to expand. 

It is never as bad as investors think

Investors, who are moving to cash, are thinking rate increases are going to destroy the market, the economy and the fundamentals of society as well.

You should relax. We have seen rate hikes before, and will again. Remember that rates were 20 percent plus not that long ago.

Rates have been historically low because of the financial crisis, but it is time to get back to normal rates now as the crisis is over.

It is not the end of the world, and you do not need to set up your portfolio in an anticipation of a disaster. It won’t be as bad as you think.

Hope will make you feel better. After all, it is the first weekend in June, and we don’t want to freak out over higher interest rates this weekend, or this year.