interest rates

Impact of Rising Interest Rates

Impact of Rising Interest Rates

Featuring Mark E. Bruin, President & CEO

Mark Bruin - rising and falling arrows going up and down

This year, the Federal Reserve raised interest rates in an effort to offset inflation. While it can take several months for interest rate increases to affect the market, The National Bank of Indianapolis wants to be proactive and help clients plan for whatever comes next. CEO and President Mark E. Bruin shared his experience and insights to discuss the potential impacts of rising interest rates and how clients can prepare.

One of the most important things to keep in mind as the Federal Reserve raises rates, is to know that this economic climate is unprecedented. In the wake of the financial ramifications of a global pandemic, both the Federal Reserve and the government pumped trillions of dollars into the economy to combat high unemployment. That set the stage for the current level of inflation we are experiencing forcing the Fed to reverse course and tighten monetary conditions by increasing interest rates. With this in mind, Bruin encourages people to be “cautious with their finances and take a more conservative approach to their investments” at this time.

When it comes to personal lending, rising interest rates will affect all types of borrowing. Recently, the 30-year fixed interest rate for mortgages increased to over 7%, a level not seen in many years. Bruin provided important historical context, “Despite the increase in rates, they are still relatively low by historical standards. For example, in the late 1970s and early 1980s, mortgage rates were in the mid-teens and people still were able to buy homes.”

For investors, rising interest rates can have mixed effects. On one hand, the value of bonds or fixed income investments decline when rates increase. The current pace of rate increases has caused stock prices to drop over 10% YTD. In fact, the current environment is once again unusual because both stocks and bonds have dropped in value by double digits. On the plus side, rising rates provide investors and savers the opportunity to earn more income on their investments and savings.

When it comes to navigating this unprecedented economic cycle, Bruin shared some simple tips he recommends to individuals:

  1. Keep an eye on your spending.
    • To be prepared for anything, pay attention to how you are using your money.
  2. Continue contributing to your 401(k).
    • Contributing to a 401(k) during a bear market allows you to purchase stock at lower prices, which as the market recovers will grow your assets even faster.
  3. If you’re an investor, do not panic.
    • Staying invested in high-quality investments throughout the market cycle is the best way to build your portfolio.
  4. Seek support from a financial planner.
    • Working with an expert can offer advice and provide insights to help you meet your goals.
Above all, Bruin encourages individuals to be cautious but not to worry, “The current market and economic environment can be unsettling, but this is actually not that uncommon. While the increase in rates has been rapid by historical standards, the level of rates is still relatively low. The market will eventually adjust and recover. As it has been said by many people, the market rewards the patient.”

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