The general belief in recent times has been that the rate hike is sometime away. The recent batch of mixed economic data and the FOMC minutes were suggestive of a delayed hike. A certain section of market watchers have gone to the extent of saying that such a move won’t happen until next year. However, the prolonged guessing game about the timing of a rate hike has now two comments from the Fed chair and other prominent officials that hint at a rate hike sooner than later.
It is somewhat tough to guess the exact timing of the first rate hike. The central bank is looking for improved economic pointers. However, as said, economic data has been mostly mixed. First quarter GDP was reported to have improved at a sluggish pace of 0.2%, significantly lower than the consensus estimate of a 1% gain. On the other hand, the consumer price index witnessed an encouraging gain.
Nonetheless, the rate hike will come sooner or later. In that case, it is advisable for investors to add funds that stand to gain from rate hikes and offload the ones that will have a negative impact. Financials are the front runners to gain from a rate hike. Investors should add them now before the positive effect is fully priced in.
Before we pick top-ranked funds from the Finance sector that investors should consider, let’s look at the recent comments that hinted at the possibility of a sooner rate hike.
Yellen Remains Optimistic
The Fed Chair Janet Yellen remains optimistic about the prospect of a rate hike this year. Speaking to the Chamber of Commerce in Providence, Rhode Island last Friday, Janet Yellen said she still expects the Fed to raise the benchmark rate this year.
Yellen believes the U.S. economy is well poised to grow despite soft economic data. She said: “If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal-funds rate target and begin the process of normalizing monetary policy.†Yellen added that she needs to see further improvement in labor market conditions and to be “reasonably confident†that inflation moves closer to its target rate of 2%, before deciding on when to raise rates.
