Most U.S. Investors Say Interest Rate Hike Won’t Hurt Them

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The FINANCIAL — As the Federal Open Market Committee prepares for its December meeting amid widespread speculation it will raise the base interest rate one-quarter of a percentage point, a new Wells Fargo/Gallup Investor and Retirement Optimism Index poll finds the majority of investors are unconcerned about how higher rates would affect them.

Fifty-four percent of U.S. investors say an increase in interest rates would not make much difference to their own financial situation, while another 16% believe higher rates would be good for them. About three in 10 say higher rates would be bad for them.

Higher interest rates are more likely to negatively affect Americans who intend to borrow or who are paying off an adjustable-rate home mortgage or other loan, rather than nonborrowers. Thus, a hike in rates is more likely to hit young and middle-aged Americans than seniors. Meanwhile, retirees are more likely to see a positive effect from higher rates on savings accounts and interest-bearing investments such as certificates of deposit. This is evident in the finding that nonretired investors are more likely to say higher rates will be bad for them (33%) than good for them (12%), while retired investors are more likely to say such rates will be good (28%) than bad (18%) for them.

These findings are from the fourth quarter Wells Fargo/Gallup Investor and Retirement Optimism survey of U.S. investors conducted Oct. 30-Nov. 8. For this survey, investors are defined as U.S. adults who have at least $10,000 invested in stocks, bonds or mutual funds, either in an investment account or a retirement fund — a definition that approximately 40% of U.S. adults fit.

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More See Benefit to Their Savings Than Harm From Loan Costs

In terms of the direct effects higher interest rates could have on investors, more investors believe they stand to gain from interest earnings on savings than expect to be hurt on loan costs. Specifically, 51% expect to see more income or higher growth on their savings, whereas 39% say these rates will increase the cost of an existing loan.

In terms of more indirect effects, 47% say higher rates will make it harder for them to sell a home, while 35% of investors see higher rates as an opportunity to transfer money out of the stock market and into less risky investments.

Investors More Concerned About National Implications

Even as investors are not generally concerned about interest rates harming their own finances, they are fairly negative when asked about the likely effect an interest rate hike would have on the U.S. economy. Forty-eight percent believe raising rates right now would be bad for the economy, swamping the 19% who say it would be good for the economy. Thirty percent say it would make no difference.

Accordingly, 33% of investors believe the Federal Reserve should raise interest rates at its next meeting, while 64% say it should continue to wait. Understandably, more than nine in 10 investors who think raising interest rates would be bad for the economy say the Fed should hold off on raising them, but so do nearly half of those who say raising rates would not make much difference. Only those who think raising rates would be good for the economy are in favor of a rate increase.

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Bottom Line

U.S. investors are not eager for the Fed to raise the federal funds rate this week, perhaps because they generally don’t see how it will benefit the economy. At the same time, relatively few believe it will dent their own wallet. So the question is, if the Fed does raise rates, will investors react based on their personal situations or on fears of how it will affect the economy, particularly if the decision sparks volatility in the markets? Even if there is short-term market turbulence, the good news for the long term is that higher rates themselves should not be too detrimental to most investors.

 

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