On March 16, the Federal Reserve raised the benchmark interest rate to a target range of 0.75-1.0 percent, and chairman Janet Yellen made it sound like more interest rate increases were on the way this year, assuming the economy continues to grow at the slow pace it has moved in recent years.
Rates can be increased at the Fed’s quarterly meetings, but rates are rarely increased more than a quarter point at a time. Still, investors and advisors discuss options and make plans based on the likelihood of further increases in the benchmark rate.
Spectrem’s Investor Pulse asked more than 1,000 affluent investors where they thought the rate would stand at the end of 2017. Offering as choices quarter-point ranges between the current rate and up to 1.75-2.00 percent, investors generally agreed that there will be an increase over the next nine months.
Almost 70 percent of investors believe the rate will climb to 1.25 or 1.50 percent by the end of the year, with the higher 1.50 percent getting the nod from 38 percent of affluent investors. However, 18 percent believe the rate could climb even higher and 5 percent see it reaching the 1.75-2.0 mark, which would require a half-point increase at some point during the year.
Based on investor segmenting, there are portions of the population who expect much higher rates than others. For instance, among men, 62 percent see a climb to at least 1.25-1.50 percent, compared to just 47 percent of women. And, among the wealthiest investors, those with a net worth above $5 million, 66 percent see the climb going at least up to 1.25-1.50, and almost one-quarter expect the climb to reach 1.50-1.75, a full point from where the federal benchmark rate was at the start of 2017.
In general, the higher-paid the investor is, the more likely they are to see an increase in the benchmark rate by the end of 2017. Those with a net income over $200,000 are more likely to expect the rate to climb to at least 1.50 by the end of the year, compared to those with a net income of over $100,000 (62 percent to 53 percent). Seven percent of the high net income segment see the rate reaching 2.0 by the end of 2017.
Another segment notably expecting a high rate of increase in 2017 are those investors under the age of 40. Sixty-five percent of investors under 40 see the rate reaching at least 1.50 and 14 percent see it getting up to 2.0 percent by the end of the year.
Investors were asked the follow-up question whether they had taken any action in terms of finances in response to the expected increase in the Federal Reserve benchmark rate, but the answer was generally a resounding “no.” Only 15 percent of investors said they had responded, including 7 percent who said they had accelerated paying off credit card debt.
©2017 Spectrem Group