Federal Reserve Raises Interest as Stocks Close Lower

September 27, 2018
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In a widely expected decision, the Federal Reserve has raised interest rates for the third time in 2018. The immediate impact on the stock market was apparent, with stocks closing lower at the end of the day.

The good news is that the impact is not likely to be prolonged, and with the right conditions, stability could resume by the first or second week of October.

The Federal Reserve Decision on Rates – Here are the Facts

There are some key takeaways revealed by the Federal Reserve that could give investors and the public more confidence for the future.

The federal interest rate has now risen by 25 basis points, making the current rate 2.25%. This was expected and goes against the most pessimistic predictions of a 2.5% rate. However, those who predicted a new rate of 2.5% could be partially right, as the Fed has indicated that there will be one more rate increase before the end of 2018.

Real interest rates for borrowers will be almost a full percentage point higher than the federal guidance. The overnight lending rate benchmark now sits at 3.4%. Home loans are going to become more expensive, and this may cause some disruption in what is already one of the most expensive U.S. home markets in history.

On a more positive note, the Federal Reserve has estimated that strong economic growth will continue for at least the next three years. The Central Bank has indicated that they will implement three rate hikes in 2019, and another in 2020. The key here is to maintain interest rates with economic pace. Managed correctly, this will keep inflation in check and minimize the negative impact on consumers and borrowers.

President Trump Not Happy

As in the past, President Trump is not happy with the latest hikes. In a press conference in New York, the President said that “We’re doing great as a country. Unfortunately, they just raised interest rates because we are doing so well. I’m not happy about that. I’d rather pay down debt or do other things, create more jobs. So, I’m worried about the fact that they seem to like raising interest rates.”

Generally, hawkish rate increases are a side effect of a strong economy. With close management they should not stifle growth. While the President’s words will resonate with many people, there will be others who see rate hikes as further proof that the country is on the right path.

No single stock market index dropped more than .4% after the hike, but the next two days will be key when analyzing the real impact this news has had on investor confidence.

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