For the first time since the 2008 recession the Federal Reserve today has signaled that it’s willing to bring an end to near-zero percent interest rates.
Could the party be over?
While Fed chair Janet Yellen doesn’t see an increase happening in the next two meetings of the Fed governors, it’s quite possible it could act as early as June.
However, others speculate that any change won’t come until later in the year. Currently, its benchmark sits at 0.25 percent. The New York Times suggests that could hit 0.75 percent by the end of the year.
“While officials continue to anticipate a rate hike in the coming months, the average prediction of the 17 officials who participate in policy decisions is that the Fed’s benchmark rate would only reach about 0.75 percent by the end of the year. The average predicted rate by the end of 2016 was still just 2 percent, according to quarterly forecasts the Fed released with its policy statement Wednesday.”
What does this mean for Canadian advisors and their clients?
Well, most experts see the Bank of Canada raising interest rates later and less steeply than its American counterpart.
In October 2014, Leith Wheeler Investment Counsel fixed income portfolio manager Ben Homsy predicted the Bank of Canada would raise rates approximately six months after the Fed. Longer term he sees the BoC raising rates 175 basis points by 2017, a full percentage point less than the Federal Reserve.
Either way it’s time to start thinking about paying down all non-mortgage debt sooner rather than later because the cheap-money party appears to be winding down.