Should We Prepare for Higher Interest Rates?

By: Dr. Lynn Reaser

The Federal Reserve has indicated it intends to end its program of
buying Treasury and mortgage-backed securities before year-end. This
represents a clear signal that it wants to exit from the policy of
extraordinary ease it has followed for the past six years. Its bond-buying spree has ballooned its balance sheet to around $4.5 trillion.

The FedInterest-Rate-300x300 has emphasized that the first explicit interest rate hike
with a boost in the overnight federal funds rate, is unlikely to occur until several months after the last dose of quantitative easing has
been applied. Long-term interest rates, including mortgage rates, and
many other market-determined rates will not wait that long. With the job
market and inflation rates firming, interest rates will be driven higher.

The precise timing of the upward push in interest rates may be in
question, but the trend is not.

Photo Credit: Expat Money Watch


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