Investors Brace For More Interest Rate Hikes

Interest rates. Wherever they go, Florida home loans are sure to follow.

So naturally, prospective buyers and sellers are anticipating the Federal Reserve’s next move. CNN reports that the country’s centralized banking system is expected to boost rates for a 15th consecutive time when it meets later this month. The projected hike would put rates at 4.75 percent.

Many market observers are also predicting a 16th rate hike in May.

Investors typically don’t like rising rates, despite their being considered a sign of a growing economy, because borrowing costs for corporations, which can erode profits, also increase.

“Corporate earnings may slow down and with the Federal Reserve poised to raise rates at least one if not two more times, a lot of equity investors are cautious and waiting to see how first-quarter earnings will be. That could be a reason why stocks are taking it on the chin.” said John Norris, an economist and senior fund manager with Morgan Asset Management in Birmingham, Ala.

Rising rates have become a global concern as well. Recent comments from the European Central Bank and Bank of Japan indicate a strong possibility that those banks will raise rates in the near future. The ECB has already raised rates and is signaling more to come, with Japan’s central bank widely expected to end its long policy of keeping interest rates near zero when it convenes this week.

So what does it all mean for investors the next few months?

Some investors think now is the time to cut back on underperforming stocks, with the market possibly getting worse before it gets better. Another legitimate concern is inflation, and the Federal Reserve will likely keep raising rates to combat pricing pressures. In a ripple effect, long-term bond yields will probably keep heading higher as well.

Under the leadership of new chairman Ben Bernanke, The Fed is likely to keep raising rates for the foreseeable future. Investors should consider waiting until later this year for signs that the Fed is truly done before jumping back into the stock market. Still, others think that investors who ride out what could be a couple of rocky months eventually will be rewarded.

Either way, expect the rates of Florida home loans, along with mortgages nationwide, to show an increase this week amid concerns that another Fed hike is coming.