Show #264 Airing: Sunday, July 25, 2004
“The party’s over.” The Federal Reserve has recently raised interest rates. Should some of our investments take a hike just because the interest rate has? Here to explain what the changes mean to you is Jim Lineweaver, our first “line” of defense against financial problems. Jim is founder of Lineweaver Financial Group.
Question: The Federal Reserve has recently raised the interest rate. When did this occur? How big was the raise? Can we expect more raises?
Answer: On June 30th, the Federal Reserve raised the interest rate one quarter of a percentage point.
In a statement, the Fed suggested that they will continue to raise the rate a quarter at a time, and that it might move to half percentage point rises if inflation accelerates.
Question: This will affect us and our investments in a lot of ways. Let’s take a look at some of the adjustments that are likely coming. First, what about those with mortgages or home equity loans?
Answer: If you have a fixed-rate loan, you won’t be affected by the rising interest rates. Those with adjustable-rate mortgages will be affected, and those account for 40 percent of outstanding prime mortgage debt.
If you have a hybrid loan, you may have some breathing room, because the rate may be fixed for the first one, three, seven, etc. years.
Question: How will auto loans be affected?
Answer: Higher rates will mean higher costs for some car buyers. However, it seems likely that auto manufacturers will be still offering 0% financing to keep spurning sales.
Question: We know that credit card interest rates will likely rise, correct?
Answer: Credit card companies have been slow to pass on rate cuts in recent years, but the rate hike will be felt almost immediately.
Variable rate credit cards (half of all cards) will probably see a full point increase in the next nine months if rates continue to rise.
Introductory offers to new cards will also likely be pulled back.
Question: Are Certificates of Deposit (CDs) going to be affected?
Answer: Those saving cash will find best rates in certificates of deposit. But you may want to consider not investing in a CD for over the length of a year. You may want to roll your money into CDs with higher rates if the interest rate continues to rise.
Question: What about stocks and bonds?
Answer: The bull market in bonds is dead. Treasury bonds are not attractive in this environment. Avoid bonds with 10-year or longer maturities.
Municipal bonds, however, are yielding one percentage point about the yield of Treasury bonds right now. (Unusual).
Stocks traditionally do well after the first interest rate hike and stumble after the third. Those potentially hurt by the raise are those involving real estate and financial stocks. Potential winners involve natural resources and healthcare.
The rise in interest rates can cause an interesting impact on our finances. My thanks to Jim Lineweaver for “raising” these issues with us today. If you are “interested” in more interesting information, you can give his office a call.
Jim Lineweaver is a registered representative of and offers securities through Walnut Street Securities, Inc. (WSS) Member NASD/SIPC.
Branch Office:
9050 Sweet Valley Drive,
Valley View, OH 44125
216-520-1711
WSS does not offer tax or legal advice.
Lineweaver Financial Group is not a subsidiary or affiliate of WSS.
Material discussed is for information purposes only and should not be the basis for any investment decisions.
