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What Clients Need to Know About Interest Rate Hikes

The Federal Reserve recently announced the biggest rate hike since May of 2000. Chairman Powell dropped the half point jump, which sent bonds down and the market up. The Fed has been under pressure to raise rates to try and stave off harsher inflation, which can have difficult and complex impacts to the middle class and fixed-income Americans. As a trusted wealth management advisory service, you should prepare yourself to answer your client’s questions about interest rates.


The Fed and The Economy

Traditionally, higher rates have coincided with a slower property market as well. As the spring home buying season is starting to heat up, the effect of these rate hikes remains to be seen. An already competitive market could weather this increase without much problem, but it could also trigger a slow down. There’s no doubt that it will have some impact on the market, but how much is anyone’s guess. You should be upfront with clients when they ask about long-term effects on the market. Though we have some historical data to point us in the right direction, it’s difficult to see exactly how things will play out. 

The Fed can only do so much to pull the levers of the economy. Raising and lowering interest rates certainly helps, but it doesn’t give immediate relief to the Americans that are sticker-shocked by the high prices of food and energy. Likewise, those without the ability to secure extra income such as those on disability or retired are still in economic pain. 


Will Rates Go Higher?

The main concern of most people is that the rates will continue to go up. Chairman Powell committed to not raising rates to three-quarters of a percentage at the next meeting in June, as many analysts speculated that would be the best move for curtailing inflation. That doesn’t mean it’s not coming, however.

Raising interest rates is a complicated game and oftentimes has unpredictable outcomes. The U.S. economy is in a strange place, historically speaking. Businesses are grappling with stagflation, or at least tenants of it, while unemployment is historically low and job openings are at a record high. What does this mean for your clients and their money?

Setting the Economy Up for Future Growth

We’re still fairly optimistic that a move by the fed would be positive for the economy in the long-term. Short-term pain could play out in their wallets, but overall, our economy, and your clients’ money will be better off for it. Financing a GDP on cheap debt can’t last forever and would ultimately lead to a larger and more sustained recession or depression.

The current interest rate scenario is comparable to working out. Many don’t enjoy it, but they know that the sacrifice today will allow them to spend more time with those that they love in the future and give them a higher quality of life down the road. Bumping up the interest rates might feel like waking up at 5am on a winter’s morning to hit the gym, but years from now, we’ll be thankful we did it.

It will be important to communicate that to your clients, especially those concerned with leaving assets behind. Raising rates will help the U.S. economy be stronger, more resilient, and hopefully more profitable for those investing in it.

As with everything, the longview is the right approach to take with news from the Fed. Be sure to communicate openly and honestly with your clients and help them see the silver lining on any potential storm clouds.

Wondering how you can up your advice game? We’d love to talk.