The Federal Reserve has kept short-term interest rates at near zero for more than nine years. Starting in 2013, the Fed announced the possibility of rate increases. Though a rate hike was predicted for the Fed meeting on Sept. 17, the rate went unchanged.
Most wealthy and older Americans favor an interest rate hike to help their investments.
It is axiomatic that higher interest rates benefit lenders and hurt borrowers. Whether Americans favor a rate hike is linked to economic views, resources, financial investments and social fundamentals.
Last month, Spectrem Group, a Chicago-based research and consulting firm, published its survey of interest rate hike preferences by age and wealth groups. The sampling was statistically small but found age, investment involvement and wealth appear to be criteria for assessing views.
Of the 1,200 surveyed, 77 percent of those with net worth exceeding $5 million favored increased interest rates. Sixty-nine percent of this group were 60 or older. Only 44 percent of the least affluent, with a net worth of under $100,000, supported a fed rate hike. Forty-three percent of this group were younger than 40.
The under-40 crowd's views almost matched the over-60 crowd in supporting larger rate increases, with 5 percent urging rate increases of 2 percent or more. It was unexpected that the younger group supported higher rates to almost the same extent.
“Some people questioned, especially among the young who have little or no experience, do not really understand the impact on them of higher interest rates,” Cathy McBreen, managing director of Spectrem, told the Tribune-Review.
Ignorance may be one reason, but a more cogent explanation seems to be a composite of socioeconomic factors.
Wide variations exist in investors' investment time horizons, asset allocations and the balance between income and expense obligations. Young or old, it is the nature of economic philosophy, financial assets held, and net debt balances that likely determine someone's perspective.
Increased rates hammer borrowers, particularly those with adjustable rate loans. But tax deductible mortgage interest is an incentive for young families to buy rather than rent.
Investors have a different take. Rising interest rates erode bond prices, which fall to allow bond yields to realign upwards to reflect increased short-term rates. Normally, high rates curb consumer demand, which reduces corporate revenues and share prices. Higher money costs lessen the support for stocks offered by borrowed funds or margin.
Older investors oriented heavily toward certificates of deposit favor higher rates. Some younger investors looking for long-term growth may accept higher rates.
There is unprecedented public debate over interest rate hikes. Former Fed Chairman Paul Volcker, renowned for curbing inflation with historically high interest rates, told the Trib: “I am amazed at the time and energy expended over a possible rise of a mere quarter percent in Fed rates.”
The discourse is likely to continue until the Fed acts.
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