The Federal Open Market Committee's decision on Dec. 14 to raise the target the Federal Reserve's Fed Funds rate will mean little for long-term investors, according to analysts for GuideStone Financial Resources, the financial services arm of the Southern Baptist Convention.
The committee's decision reportedly confirmed analyst and market expectations by voting to raise the target Fed Funds rate by 0.25 percent, bringing it to a range between 0.50 and 0.75 percent. Citing improvements in the economy since 2008, the Fed indicated it will make future rate increases gradually and that three rate hikes are likely in 2017. While the decision will have an impact on individuals with variable interest rate debt as well as short-term and institutional investors, it means little for long-term investors, such as those investing for retirement, GuideStone Chief Strategic Investment Officer David S. Spika said.
Federal Reserve governors were unanimous in this decision to increase the Fed Funds rate. Prior to Wednesday's announcement, the rate had sat in a range between 0.25 and 0.50 percent since last December. This is only the second rate hike in a decade.
Rising interest rates are normal at this point during an economic cycle, Spika said.
“Because this rate hike was fully expected by investors, and it appears as if the economy is strong enough to support it at this time, we do not anticipate it having a material impact on the financial markets in the near term,” he said. “The real focus for investors now should be on proposed fiscal stimulus coming out of the Trump administration and the potential impact of future Fed rate hikes, especially if they occur more frequently than expected.”
While the increase in interest rates shows confidence in economic growth, retirement investors should focus on their long-term goals and make investment decisions consistent with their objectives, time horizon and risk tolerance, noted GuideStone President O.S. Hawkins.
“As we remind our participants anytime there is significant news, the performance of your retirement account moving forward will be determined based on results of the financial markets in the future, not the past,” Hawkins said. “It's easy in a 24/7 news cycle to get caught up in the headlines and emotions of the moment. It's important to always remember markets are cyclical and historically have rewarded those with long-term perspectives.”
(EDITOR’S NOTE – Roy Hayhurst is director of denominational and public relations services for GuideStone Financial Resources of the Southern Baptist Convention.)