This week, the Fed Raises Interest Rates by 0.75 percentage points. This was the largest increase since 1994 which is consider as an aggressive move in a bid to bring the current inflation rates down.
This is probably not the end of the interest rate hike since the Fed promised more aggressive moves ahead if current hike doesn’t bring inflation down.
What is the impact when Fed continue to rise interest rates?
Let us take a look at some of the impact below.
Impact of Fed Interest Rate Hike
I wrote about this back in 2016 about the impact when Fed raises interest rates. There are benefits and downsides to such moves.
Higher Mortgage Rates & Loans
Raising interest rates makes it more expensive for to borrow from banks. For home buyers this will mean higher mortgage rates when they borrow from banks to pay for their new property.
Strengthening of US Dollar
Rising interest rate will mean that the US dollar will continue to strengthen in 2022. This will affect Singapore stock traders who likes to trade in the US stock market. It means we are paying more for the stocks traded in US dollars on NASDAQ.
Higher Fixed Deposit Rates
Financial assets such as Fixed Deposits and Bonds benefit from such moves as the interest rates are higher.
How Did The Stock Market React?
The US stock market rose when news of the Fed rising interest rates was announced.
From what I heard over the radio, stock analysts believed that the move was a good one. Even though we are in the bear market, analyst commented that this time round companies had better balance sheets as compared to past crisis. The stock market remain volatile in the short term but should recover in 6 to 9 months.
Since I have many REITs in my stock portfolio, I wonder what will be the impact of the interest rate hike? I found this good article from fool.com that best describes it. The rate hike will add some pressure to REITs since they borrow capital to grow.
Oh well, let us keep calm and scoop up some quality stocks!