With an improving economy and an accelerating job market, the prospect of interest rates hike is moving closer despite global growth concerns. The Fed indicated its confidence in the economy in the latest FOMC meeting and confirmed that it is on track to raise the interest rates for the first time since 2006, sometime later this year.
In fact, Atlanta Fed President Dennis Lockhart yesterday stated that the interest rates hike could come as early as next month.
This is especially true given that the first-quarter slump in the U.S. seems to have been tided over with 2.3% economic expansion in the second quarter. The economy created at least 200,000 jobs in 13 of the past 15 months with broad-based gains and unemployment dropping to the seven-year low of 5.3%. Further, economic activity has been rising moderately, consumer confidence and spending has increased, and the housing market is seeing frenzied demand for homes.
While the overall economy is gaining momentum lately, subdued inflation, lower business investments, and soft exports continue to weigh on economic growth. As such, uncertainty still looms around the timing of interest rates. The Fed also indicated that the path of rate hikes would be gradual, meaning that the Fed will take baby steps once embarks on the trail of increases.
Given this, investors should be well prepared to protect themselves from higher rates albeit at a slower pace. Here are number of strategies that could prove extremely beneficial for ETF investors in the rising rate environment: