ITHACA, NEW YORK – Jan 15, 2016 – On December 16, the Federal Reserve raised the federal funds rate by 25bps for the first time in almost a decade. The hike was an expected and telegraphed move that Chair Janet Yellen said would be followed by “gradual” tightening as officials watch for evidence of higher inflation.
Since 2008, the Federal Reserve has maintained the target rate for the Federal Funds rate at record low of 0% to 0.25% in order to combat the Great Recession of 2008-2009 and to stimulate the U.S. economy. The federal funds rate is one of the most influential interest rates in the U.S. economy, since it affects monetary and financial conditions, which in turn have an effect on key aspects of the broad economy.
The impacts of the increase will vary based on the audience. According to Chris Kim, Chief Investment Officer for Tompkins Financial Advisors, “The direct impact of the Fed’s decision will be on short-term rates, which are tied to consumer loans. Longer-term rates, which are tied to mortgages, will follow accordingly to the relationship between supply and demand.”
Savers and borrowers will each be affected differently, he explains. “Savers will benefit from the slightly higher interest rates on deposits. Borrowers will pay more interest on credit, so consumers planning to purchase durable goods items, such as large appliances on credit, will begin to pay more.”
According to Mr. Kim, business owners will be affected differently depending on their situation. “Businesses have enjoyed a long period of lower loan rates, allowing them to build stronger balance sheets. Some have locked in fixed rates so their impact will be less than those whose loans are tied to variable rates,” he said.
Mr. Kim’s advice for investors is to work with their financial advisors to review their investment or retirement portfolio. This will determine the need for rebalancing or to consider alternative strategies for actively managing portfolios that will secure investments for the future.
“If the U.S. economy and corporate sector fundamentals remain healthy in 2016, and investors remain confident the Fed will raise rates slowly, the risk of a credit crunch remains relatively low,” says Mr. Kim. “The question is, to what extent will the fundamental problems of sectors that are sensitive to higher rates contaminate other parts of the economy?”
“Changing interest rates are a given,” states Mr. Kim. “The key is to understand that the economy is always changing. As investors, we must prepare and respond accordingly. Every day we help our clients assess and reduce their risk, while maximizing profits.”
About Tompkins Financial Advisors:
Tompkins Financial Advisors is an independent, fee-based, wealth management firm with offices throughout New York and southeastern Pennsylvania. We take tremendous pride in our fiduciary approach to serving our clients’ best interests which has led to our 95+% client retention rate. Tompkins Financial Advisors is part of Tompkins Financial Corporation, a financial services holding company, publicly traded on the NYSE MKT under the symbol TMP. Tompkins Financial was founded in Central New York over 175 years ago and is still headquartered there. The company is committed to creating long-term value for our clients, our communities and our shareholders. Tompkins has been recognized as among the strongest and best performing financial institutions in the country by numerous third party organizations, including The Staton Institute, Sandler O’Neill & Partners and KBW (Keefe, Bruyette & Woods).
Distributed by The Digital Hyve
Company Name: Tompkins Financial Advisors
Contact Person: Kim Bellavia
Country: United States