Earlier this morning it was confirmed that the US Federal Reserve raised interest rates by 0.25% to between 2% to 2.25% target range.
Many investors were expecting this, it was no surprise. Indeed, several more interest rate rises are expected over the next couple of years.
However, the US Fed expects another rate hike in December this year, three more during 2019 and one more increase in 2020. If all of these increases happen the US rate would be above 3%.
However, I’m sure every homeowner has recently experienced out-of-cycle interest hikes from banks including Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ), Bendigo and Adelaide Bank Ltd (ASX: BEN), Bank of Queensland Limited (ASX: BOQ) and Suncorp Group Ltd (ASX: SUN).
You may remember that National Australia Bank Ltd (ASX: NAB) recently decided not to raise its interest rate to ‘build trust’.
My worry is that with each US Fed hike there will be a somewhat smaller hike on Australian mortgages from our local banks because some of their funding comes from overseas sources.
The recent hike alone is causing households grief – think what another two years of hikes could do? Of course, banks may change their funding mix or absorb some of the costs. It may not be that bad. But the RBA is likely to increase rates too at some point.
What this says to me is that Australian households are in a tight spot and bank shares are not the place to be in my opinion. I just think there are better investment opportunities out there for us investors willing to look at smaller businesses.
Such as this exciting ASX growth share that may be a dominant player in the coming years – it’s growing profit at a tremendous rate each report.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Transurban Group. The Motley Fool Australia owns shares of Appen Ltd and National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.