All eyes on the Fed as it increases interest rates.
Taking a closer look…
- The US Federal Reserve (the Fed) raised interest rates last week. The Fed Board of Governors unanimously voted for its first rate increase in three years, raising its benchmark rate by a quarter point to 3.75-4%.1 The widely expected move signals the Fed’s continued focus on inflation and is important for investors because higher rates can influence borrowing costs and market performance.
- Why did the Fed decide to raise interest rates now? The Fed highlighted persistent inflation as the primary catalyst for the rate hike, noting that too many prices are still rising faster than its comfort level. A resilient economy and stable labor market also gave the Board confidence to move higher, signaling it believes the economy can withstand tighter financial conditions.2
- What other indicators are pointing to a strong US economy? After a disappointing July, retail sales rebounded in August and exceeded expectations, reflecting healthy consumer demand. While higher gas prices at the pump contributed to the uptick, August spending gains were broad-based, including discretionary purchases like electronics and appliances.3 That strength suggests consumers remain confident and continue to support economic growth.
- Why does an increase in the benchmark rate matter? A benchmark rate increase most immediately impacts short-term borrowing, namely credit card interest rates and home equity lines of credit. While the move could also put pressure on some areas of the housing market, mortgage rates tend to be driven by 10-year Treasury yields rather than the Fed’s benchmark rate.4
Institutional Portfolio Manager, Strategic Advisers
"Higher interest rates are often viewed negatively, but it is important to recognize that rising rates may reflect a growing economy. While the Fed remains focused on bringing inflation under control, the broader backdrop remains constructive, with strong corporate earnings, a stable labor market, and healthy consumer spending."
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For over 30 years, Strategic Advisers and its dedicated group of seasoned investment professionals have helped clients reach their financial goals. Our team of portfolio managers, with specialized areas of focus in asset allocation and specific asset classes, along with our deep quantitative and fundamental research, drive our investment selection and risk management decisions on behalf of our clients.