The Federal Reserve is poised to do something it has not done in more than a decade — raise interest rates.
Despite the occasion, Aaron Leaman, chief investment officer with Pittsburgh-based Signature Financial Planning, is not recommending any rash changes.
“This is not something that is a make or break thing for any average investor,” said Leaman. “If you are a long-term investor, looking to secure your retirement or fund your child’s education… one decision made by the fed on one day in December is not going to make or break your portfolio in either direction.”
Signature Financial Planning works mostly with high-net-worth individuals and some institutions on their investment portfolios and other aspects of their finances.
Fed Chair Janet Yellen is widely expected to raise short rates by .25 percent as a reaction to a strengthening economy when the fed meets Dec. 15 and 16. Some had been calling for interest rates to be bumped up for more than a year.
Last year, Pittsburgh-based PNC Chief Economist Stuart Hoffman predicted rates would increase slowly starting in the early summer.
“It will be very slow,” Hoffman told WESA at the time. “It will kind of take off like a balloon rather than a rocket.”
Lehman said he will be more interested in what Yellen says while announcing the rate hike, rather than the number itself.
“How quickly do they plan to raise again after this?” asked Leaman, “Is this something they are going to do on a regular basis at every meeting? Are they going to raise in larger chunks?”
Federal Reserve Chairmen are well know for giving well worded signals to the markets and Lehman said Yellen is no different.
Variable rate loans will be among the first rates to increase followed by credit card rates and other consumer debt. Bond prices will also quickly change which could open up some good deals according to Lehman. But he warns against buying into long term bonds if the Fed indicates more increase are on the near horizon.
But Leaman puts it all into perspective.
“Older investors certainly remember in the 70’s and 80’s when interest rates were 15%. 18% even was not unusual both for a mortgage and for a CD you could go get at a bank. So living in a world now of almost zero interest rates where the increase to a quarter of a percent is viewed by a lot of people as a big deal, I think that provokes a bit of a smile among those old enough to remember the bad old days,” said Leaman.
