AAII Survey: Investors React to Fed’s Decision to Slow Rate Increases

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Since 2015, the Federal Reserve has increased interest rates nine times. While those investing in interest-bearing instruments have applauded these increases, others, including President Trump, have railed against the central bank increasing interest rates too quickly.

Following the last meeting of the Federal Open Market Committee (FOMC), Fed chairman Jerome Powell signaled that the central bank has changed its outlook regarding interest rate hikes.

“The case for raising rates has weakened somewhat,” Powell said during a news conference following this week’s two-day FOMC meeting. The statement came after the FOMC decided to leave its benchmark interest rate target unchanged at 2.25% to 2.50%. In addition, the committee vowed to take a “patient” approach toward further hikes. Powell added that the funds rate is “in the committee’s” range of a neutral rate estimate, a key measure for the Fed.

AAII Weekly Survey Question

In light of the apparent slowing of interest rate increases by the Federal Reserve, last week’s survey question asked:

The chairman of the Federal Reserve recently signaled that the central bank will slow the pace of interest rate increases. Is this good or bad for investors?

Here are the results:

In all, 1,704 votes were cast.

The vast majority of participants—75%—said the slowdown in the pace of interest rate increases was a good thing for investors. Only 10% of those voting said this development was bad for investors.

The remaining 15% said they are not sure if the slowing of interest rate increases by the Fed are good or bad for investors.

Weekly Special Question

To delve deeper into investors’ attitudes regarding the more dovish tone from the Fed regarding interest rate increases, our follow-up special question asked:

Why do you think the case for raising short-term interest rates has weakened and what does this mean for investors and the economy in the longer term?

In all, we received 226 responses.

The primary reason (with 27% of the responses) why our readers believe the case for raising short-term interest rates has weakened is because of indications that the U.S. economy is starting to slow down.

Another 19% of participants said the reason why the case for raising short-term interest rates has weakened is because of the rising cost of debt for the U.S. government.

Twelve percent of participants said the Fed doesn’t need to raise interest rates as quickly as it was planning because inflation is under control and additional increases would spur inflation.

Seven percent say the Federal Reserve caved to the public pressure being put on it by President Trump.

Here is a sampling as to why our readers feel the Federal Reserve appears to be slowing the rate of increases in short-term interest rates:

  • “Inflation seems to be under control.”
  • “A possible cause for inflation”
  • “It is perceived that the economy is not growing, probably due to the trade issues and tariffs.”
  • “Chairman Powell articulated the reasons for their decision well. Some indicators, like housing and car sales have leveled off or are descending, the market volatility indicates skittish investors, and inflation hasn’t really started to ramp up. No compelling reason to keep raising rates.”
  • “I think Powell caved to political and equity market pressures by pausing both rate increases and balance sheet reductions.”

Everybody has an opinion! Why not give us yours? Participate in our weekly member poll, updated every Monday, and see the results online at www.aaii.com/memberquestion.

 

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