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Fed rate hike welcome, expected news; no impact for long-term investors

DALLAS — Wednesday, the Federal Open Market Committee confirmed analyst and market expectations and voted 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. The decision will have an impact on individuals with variable interest rate debt as well as short-term and institutional investors, but 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 today’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.

Spika noted that rising interest rates are normal at this point during an economic cycle.

“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,” Spika 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.

“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,” said GuideStone President O.S. Hawkins. “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.”

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