June 16th, 2017 Facebooktwitterlinkedin
Weekly Wealthcast™ Why a Rise in Interest Rates is a Good Thing

TRANSCRIPTION:

Hi, I’m Steve Dudash at IHT Wealth Management- welcome to this week’s Wealthcast™. So, I want to focus on the big news that came out of the Government this week, earlier this week- the Federal Reserve raised Interest Rates for the third time in 12 months, there’s actually a fourth one coming later this year. Probably two or three are coming next year, but it’s a good thing. It really is a good thing.

One, it was telegraphed so well that everyone knew it was coming, so it’s not like there was a surprise with this at all- transparency always helps in that world. But two, it shows that our economy, and I know that it’s been slow- but our economy is rebounding well. It’s been eight or nine years now since the great recession, and if we keep plugging along, and getting a little bit better, a little bit better, a little bit better, not this  whole boom and bust cycle, but progressively getting better.

Inflation is low, maybe a little too low, but in the right range. Unemployment, how many years in a row there did we have unemployment numbers that were just way too high? Flat out just way, way too high. We are actually at the point where you can start to make the argument that we’re too low, which again is a good reason why they should raise rates a little bit for future ammunition, slow that down a little bit. But most importantly, it just reinforces that our economy is doing well, that we are rebounding nicely. The European’s economy is doing well. Emerging Market’s economies, China kind of, are doing much better- and that gives our Federal Reserve the leeway of raising rates without dampening the world economy (which hurts us) too much.

It’s good for retirees. They are starting to earn, slightly, more on their interest bearing accounts. It’s not really the greatest for people who have debt or who are taking out loans or buying things like businesses or whatever. It’s not the greatest for that, but because the interest rate hikes have been so small, 25 basis points each time, because the long term rates haven’t really moved too much- it hasn’t really had that much of a negative effect on that side of it.

The one thing I do want focus on is, and the one part of this that I don’t think gets enough press is- how well our economy has done because of how low we’ve been able to keep oil prices down. OPEC, about 12 months ago or whatever, came out and really said, “We’re cutting production” and they really did cut production in order to try to prop up oil prices. And it’s been impressive how well our in house production, mostly shale production, has filled that void in such a short period of time. It really has negated virtually the entire production cut that’s been out there. If that continues, five years, ten years from now, we’re going to look back and point fingers and say, “that was the reason why the economy went on such a nice run for such a long period of time.” Because I don’t care how you spin it, oil is a tax on the economy, for the most part. Not energy companies, but for everybody else it’s a tax. If we can keep those prices down with in-house production…very nice benefits that come out of that. So, hopefully that continues.

Hopefully, that clarifies a little bit of what’s going on with the Federal Reserve. If you have any questions, call, email, Twitter anytime. And reach out to us whenever if you have any questions. Have a nice weekend. Take care, bye.

 

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