Tags: Rising | interest rates | inflation | economy

Financial Adviser Yoshikami: Rising Interest Rates, Inflation Not Necessarily Bad

By    |   Tuesday, 25 March 2014 12:18 PM

Financial markets swooned briefly last week after Federal Reserve Chair Janet Yellen indicated that the Fed may raise interest rates earlier than most Fed watchers expected.

But "rising interest rates and inflation are not necessarily a negative," Michael Yoshikami, CEO of Destination Wealth Management, writes on CNBC.com.

Consumer prices rose 1.1 percent in the year through February, and the Fed's federal funds rate target stands at zero to 0.25 percent.

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Higher rates are the byproduct of an improving economy, Yoshikami says. "Rising interest rates suggest economic growth and that's good for stock prices and the overall economy."

Rising rates also would help people who are dependent on their fixed-income investments, Yoshikami notes. "Investors living off the income from their investments will finally get a fair deal," he said.

"Millions of fixed-income investors are earning negative [real] yields. . . . It's a horrible outcome."

Inflation too is a natural outcome of economic growth, Yoshikami writes. "Companies need pricing power, and inflation provides that opportunity." Companies have been relying on cost cuts to increase profits, but can't do so indefinitely, he says.

To be sure, both rising rates and inflation can have a downside too, economists say. "A rise in rates does become a delicate balance going forward, and it is a double-edged sword," Jack Kleinhenz, president of the National Association of Business Economists, told The Washington Post.

"While rate increases could undercut the recovery, they also can be viewed as a positive development for the economy."

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Financial markets swooned briefly last week after Federal Reserve Chair Janet Yellen indicated that the Fed may raise interest rates earlier than most Fed watchers expected.
Rising,interest rates,inflation,economy
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2014-18-25
Tuesday, 25 March 2014 12:18 PM
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