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Beware! More American interest rate increases are on the way

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• The US central bank decided in March to raise the interest rate again. The investors have been accustomed to the idea that the Fed is starting to put the brakes on more and more. Nevertheless, the Fed may start to act even more stringently in the future than the majority of investors currently take into account.

• The American central bank, headed by Jerome Powell, has taken a different route. The loose monetary policy has given way to an aggressive reduction policy. In view of the economic climate, the Fed is forced to reduce its gigantic balance sheet position. This reduction policy naturally creates extra sales pressure on the financial markets. To date, however, that has not yet led to major problems.

Interest rate rises pose a threat to the stock market

 

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• Nevertheless, it is quite possible that the pressure on investors will continue to build up in the coming months. For example, the probability of four rate hikes (in which we already have one behind us) has risen to a small 50% in 2018 (graph: The Daily Shot). At the beginning of this year that chance was only 10%.

• Higher interest rates make safer investment products more attractive. For example, it was recently announced that the interest on a two-year US government bond currently exceeds the average S & P 500 dividend. For equities, a rapidly rising interest rate is not for nothing one of the biggest threats.

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