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The Cost of Credit – Is Now the Time to Act?

How will Washington politics affect Main Street consumers?
Luis Aureliano is a business writer and financial analyst. With over 15 years of experience in global finance and an MBA in economics and management, Luis’s areas of expertise include business, marketing, communications, personal finance, macro economics, stocks and emerging markets.
Luis Aureliano is a business writer and financial analyst. With over 15 years of experience in global finance and an MBA in economics and management, Luis’s areas of expertise include business, marketing, communications, personal finance, macro economics, stocks and emerging markets.

Via Federalreserve, Gage Skidmore & Alex Proimos

President Trump recently addressed a joint session of Congress where he laid out his ambitious agenda for the country. In an hour-long speech, he impressed upon lawmakers the challenges facing America now and in the future. Among others, he called for the repeal and replacement of Obamacare, which has been nothing short of a colossal failure despite its best intentions. The Affordable Care Act is failing across the nation, with health insurers closing and costs skyrocketing.

Trump also made reference to the need for massive fiscal stimulus to rebuild, reinvigorate and rekindle American ingenuity, enterprise and infrastructure. His plans also focus heavily on strengthening the US military to the tune of $54 billion +. The US/Mexico border wall is also on his agenda, and all of this within the first six weeks of his presidency. Amid a chorus of opposition for the resignation of Atty. Gen. Jeff Sessions, and the recent resignation of his National Security Adviser, Trump forges ahead unhindered.

How Will Washington Politics Affect Main Street Consumers?

The disconnect that is so often apparent between the Washington elites and the folks at the grassroots level is once again bubbling to the surface. All the talk about tax cuts, border security, American enterprise and the like resonate at the highest level as talking points buried in the mire of congressional bureaucracy. However, there are things that are plenty real at the government level, and these include the federal funds rate. The separation between the Federal Reserve Bank and government is intentionally designed to maintain autonomy of monetary policy.

Fed chair Janet Yellen and her second-in-command Stanley Fischer have often alluded to the need to ramp up monetary tightening in 2017. Conditions were ripe for an interest rate hike yesterday, given that the jobless claims rate is at an almost 50-year low.

How Will Equities Markets Fair?

If the recent performance of stock markets is anything to go by, Wall Street will rally. Equities markets despise uncertainty. Further, they will respond favorably to unambiguous signals from the Fed with modest and consistent rate hikes. Indices do not react well to shocks. However, markets have been forewarned about the prospect of rate hikes for quite some time and this has already been priced into current levels. Combined with Trump’s policies, we can expect a resurgence and a revival of interest in equities. From a consumer perspective, increased interest rates are a mixed blessing.

If you have excess capital available for investment, the yield on that will now be more favorable to you. However, those who have purchased properties may now be a little skeptical. For those already invested in real estate, now is the perfect time for considering refinancing your mortgage, especially as belt-tightening measures kick in. Refinanced mortgages allow a renegotiation of current repayment terms for a more favorable and affordable payback plan. With credit card interest rates likely to increase, cost-cutting measures are paramount. Over the past month, the NASDAQ, S&P 500 and the Dow Jones are up 3.30%, 3.51% and 4.49% respectively. The 1-year trend is equally bullish with average gains of over 20%. To lock in gains, it’s equally important to cut costs, and Main Street is watching the Feds carefully.