Time to raise rates? IMCA members weigh in.

A potential rate hike by the Fed is likely in the back of advisors’ minds and those of their clients. Is now the right time for a rate hike, and what are IMCA members doing to minimize the impact of higher rates? 

More than half of IMCA members believe that today’s sturdy labor market is a key indicator that the time is right for the Federal Reserve to move forward with raising interest rates.

Six years into expansion, the Fed needs to move rates off the zero bound to begin to create some dry powder for the next downturn,” one IMCA member wrote in response to a question about whether now is the right time to raise rates. “Moderately higher rates phased in raised at a measured pace shouldn't derail the expansion.

Key findings based on responses from 236 IMCA members from a recent IMCA survey on the topic include:

  • More than half (55 percent) of IMCA members think that now is the right time for a rate hike
  • 63 percent think the Fed will raise rates by fall of 2015
  • 31 percent say rates won’t rise until 2016
  • 82 percent think rates will increase by 25 basis points

Portfolio adjustments

What are IMCA members doing to protect their clients’ portfolios? Many respondents indicated they are shortening the duration of portfolios. Approximately a third are allocating more to equities while 30% are shifting portfolios toward alternatives.  

Two increases?

Some IMCA members suggested that the Fed may even install two rate increases throughout the year of 25 bps each, a notion that is backed by Federal Reserve Bank of San Francisco President John Williams who also predicted two rate increases this year of 0.25 percentage points each. Federal Reserve Governor Jerome Powell expects economic growth to accelerate in the second half of the year making a dual increase necessary.“My own forecast calls for liftoff in September and for an additional increase in December,” Powell stated, adding that the Fed needed to get ahead of what he estimates to be a continually growing economy.