Home News Banker: Rising interest rate a signal of improving economic times

Banker: Rising interest rate a signal of improving economic times

by Minden Press-Herald

Smith

The Federal Reserve raised the national interest rate one quarter of 1 percent last week, and banking officials say that is a signal of a moving economy.
Jason Smith, chief executive officer of Citizens National Bank, said he’s optimistic about the economy and what it will do for mortgages, loans and investments.

“As a general rule, a rising interest rate is a signal of improving economic times,” he said. “We shouldn’t necessarily be scared of rising interest rates. In northwest Louisiana, it’s tricky these days, because our local economy doesn’t seem to be recovering quite as quickly as the national economy.”

The weak movement of the natural gas and oil industry is to blame, he said, because these two industries are the area’s bread and butter. In terms of loans, such as mortgages, small loans and business loans, it means the cost of the loan will increase but not overly so.

Officials with the Federal Reserve say job growth is a key factor in the increase in the interest rate, as the nation’s unemployment levels dropped below 5 percent. Mortgage loans are increasing by one half of a percentage point, and new car loans have slightly increased, reserve officials said.

“With small loans in particular, the rates will have a small increase but it doesn’t really affect the monthly payment much, and when borrowers have the ability to repay, a modest increase is not going to preclude them from qualifying for a loan they would otherwise qualify for,” Smith said.

He emphasized that a person’s ability to qualify for a loan is not affected by the economy or the political atmosphere. However, qualifications on loans are somewhat harder to come by, he added.

Business loans are on the increase as business owners are taking on loans to build or create projects that might have been on hold. Smith said with the “potential of a more business-friendly climate,” people are more willing to start those projects.

“We’re seeing stronger loan demand locally,” he said. “I think a lot of it has less to do with the rate environment and more with a general optimism for the national economy.”

As corporate earnings go up, it drives up the value in the stock market, in turn increasing returns on investments over time.

“You have to have a customer who is willing to take the additional risk of equities,” he said. “There’s a difference in having a CD, which is a relatively secure investment, and something that would be a national stock, and understand their appetite risk.”

As for investments, Smith said a strong long-term investment strategy would help those with investments continue to have a healthy portfolio. It depends on the amount of risk a consumer wants to take. A certificate of deposit, or a CD, carries the lowest risk, while a mutual fund might not. In a mutual fund, diversity is the key, he said.

The FDIC insures a CD up to $250,000, whereas stocks and bonds investments carry additional risk.

Smith reiterated the importance of a strong strategy.

“The important thing is to have a long-range outlook, a long-term plan, and have the discipline to stick with that plan and not try to pick the highs in the market or the lows in the market,” he said. “Having a diversified portfolio, a long-term strategy and understanding your risk appetite are all components of the investment decisions you’ll want to make.”

Related Posts