Impact of US Interest Rate Increases on Day Traders

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Well the suspense is finally over. Rather than waiting to see if the US Federal Reserve Board (commonly known as the Fed) will raise interest rates or by how much the decision was finally made this week. Rates will surge by a phenomenal amount of .25%. The reasons given by Fed Chairwoman Janet Yellen primarily center around the strengthening of the US economy in general combined with declining unemployment. These indicators were enough to finally tip the scales for Fed decision makers to make the long-anticipated move.

Yellen has assured concerned Wall Street analysts that the Fed would only raise rates very cautiously and slowly, but acknowledged at the same time that increases could increase volatility in markets as adjustments are made.

Initial reaction to the announcement was celebration of the Fed’s move through investor optimism that boosted the Dow 224 points. By weeks end a stark reversal was noted as the Dow sank by 367 points as concerns arose that the global shows signs of cooling and investors moved assets to safer municipal bond funds and away from their typical stock and bond funds that had been their consistent sources of gains.

Automobile manufacturers and dealers are some of the consumer-facing businesses leery of higher interest rates. An almost immediate impact of the Fed’s move will be increase cost of consumer financing that includes both credit card interest and loans on such items as automobiles. The fear is that this will slow or postpone vehicle purchases.

One unknown in the Fed announcement is the reference to future rate hikes: how frequent and to what extent? As long as economic conditions can tolerate minor rate increases without reversing economic growth stability will endure. It’s a delicate balancing act and it remains to be seen how the Fed’s movements will play out in reality.

Is There a Silver Lining for Interest Rate Increases?

There is nearly always another side of the coin for any economic news. With the interest rate increases come a number of plusses:

  • Savings accounts will soon offer interest above the near-zero rates consumers have been experiencing in recent economic times. Yellen indicated in her announcement that she has received comments and concerns from senior citizens that little or no interest being realized from such vehicles as CDs and savings accounts hampers their ability to exist on their existing retirement savings.
  • Inflation should be controlled for the short term, which is part of the intent of the rate increase. Depending on fluctuation of other global currencies this will have the impact of strengthening the US dollar.
  • Loosening of credit. With interest rates so low that lending profitability was marginalized, even a small increase will allow lenders to release the purse strings somewhat to offer credit to worthy consumers.
  • Housing market movement could be at least temporarily accelerated. Those potential homebuyers who have been hedging on the decision to buy may be encouraged to make the move sooner rather than later since the possibility of additional increases will spur action. On the other side of that double-edged sword is the consideration that once rates have increased further the trend will be reversed and home sales could slow.

Interest Rate Increases and Day Traders

Day traders will rely on news related to these rate increases to keep a close eye on opportunities for gain and reduce risk. Traders need to understand how these moderate increases can impact certain markets they intend to buy and sell. By constantly monitoring news and charting activity day traders can have an edge over uninformed traders.

SureTrader is a leading online broker with the tools you need to stay up-to-date on news that impacts your buy and sell decisions. Understanding market charts and news feeds can help you develop and refine your strategy. SureTrader provides essential friendly and courteous support available to our clients on a 24×7 basis to answer any questions and resolve problems.

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Disclaimer: SureTrader Blog is not intended for U.S. persons. Stock information is not to be viewed as buy or sell recommendations.

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