U.S. Investors Taking Higher Interest Rates in Stride

WASHINGTON, D.C. -- Before the Federal Reserve's decision Wednesday to raise interest rates for the third time in a year, U.S. investors reported that higher interest rates have had little impact on their finances. Slightly more than seven in 10 investors say they have noticed no discernible effect on their finances, or that the effects have been mixed or neutral. The remainder divide evenly between describing the effects as positive or negative.

	Yes, positive impact	Yes, negative impact	Yes, neutral/mixed impact	No impact
	%	%	%	%
	13	14	5	66
Wells Fargo/Gallup Investor and Retirement Optimism Index, May 4-7, 2017

The results are based on the most recent Wells Fargo/Gallup Investor and Retirement Optimism Index survey, conducted May 4-7 with 1,005 U.S. adults who have at least $10,000 invested in stocks, bonds or mutual funds.

The survey was conducted before the Fed announced a quarter-point rate hike on Wednesday, the latest in a series of increases the central bank has made since 2015. The Fed indicated it may raise rates again later this year.

Ahead of Wednesday's rate increase, investors seemed largely unfazed by the possibility of further rate hikes. Two-thirds of investors say they would not plan to change their investment choices if interest rates continued to rise. However, 23% indicate they would look to transfer some money out of stocks into interest-bearing accounts.

	Transfer money out of stock market	Not make any changes	Put money into the market
	%	%	%
	23	67	8
Wells Fargo/Gallup Investor and Retirement Optimism Index, May 4-7, 2017

For the most part, investors are confident they understand the implications of interest rate changes for their investments. Seventy-six percent agree and 21% disagree that they have a good understanding of how higher rates would affect their stock investments.

Investors did indicate some worry about further interest rate hikes having a negative effect on their investments over the next year -- 10% are "very worried" and 35% "somewhat worried," but this still represents a minority of investors. On a relative basis, investors worry less about interest rate increases than about other factors that might harm their investments.

	Very worried	Somewhat worried	Very/Somewhat worried
	%	%	%
The various military and diplomatic conflicts around the world	44	31	75
The political climate in Washington	45	24	69
The performance of the U.S. economy	11	38	49
Inflation	12	36	48
Further interest rate hikes	10	35	45
Wells Fargo/Gallup Investor and Retirement Optimism Index, May 4-7, 2017

Most investors are also not concerned about the implications of higher interest rates on the amount of debt they currently carry -- 77% say they are comfortable and 21% uncomfortable with the amount of debt they have accrued in recent years, when rates were low.

Investors Say Lower Rates Better for Them Personally

In the May survey, 66% of investors said they were satisfied with current interest rates, while 31% were dissatisfied. Those opinions largely mirror investors' perceptions of which situation is better for their own finances -- 26% say higher interest rates are better for them, while 69% say lower interest rates are.

Lower interest rates are advantageous for consumers seeking to borrow money to purchase a home or a car, or for other purposes. But higher rates benefit investors with fixed-income investments like savings accounts or bonds, who see higher yields when interest rates are high.

Retirees often have a greater proportion of savings in fixed-income investments. Consistent with this, retirees (39%) are more likely than nonretirees (21%) to say high interest rates are better for them, personally. But even the majority of retirees, 52%, prefer low rates.

	High interest rates	Low interest rates
	%	%
All investors	26	69
Retired	39	52
Not retired	21	76
Wells Fargo/Gallup Investor and Retirement Optimism Index, May 4-7, 2017

Implications

After lowering the federal funds rate to almost zero following the Wall Street financial crisis in 2008, the Federal Reserve Bank has slowly but steadily raised interest rates in recent years as it judged that the economy was healthy enough to support such increases. Interest rates remain low on an absolute basis, and that may be one reason most investors are unconcerned about the effects rate hikes will have on their investments and their personal finances more generally. This, combined with a strong stock market, helps explain much of investors' current psychology. As long as the market remains strong, investors will be in no hurry to trade the potential of healthy returns in the stock market for the security of interest-bearing accounts like saving accounts and CDs.

Also, investors still in the stock market today -- a lower proportion of Americans than existed before the recession -- may be confident enough in the long-term performance of stocks that they are willing to ride out occasional downturns or potential threats to short-term stock performance.

With most investors planning to leave their stock investments alone, those investors will continue to benefit from a strong market, if it persists. Interest rates do not directly affect stock values. However, interest rates can influence companies' profits and their willingness to borrow money to expand their businesses, which can drive down their stock values. If enough companies are affected by higher interest rates, then stocks will become a less attractive investment.