Interactive Brokers founder and billionaire Thomas Peterffy noticed one possible unintended consequence of the Federal Reserve’s rate hike.
“There is a lot of leverage in the system as the Fed starts raising rates. We will look at bankruptcies, perhaps among many private equity firms that are invested in with high leverage, and in a few businesses that will generally not be able to pay interest,” Petterffy told Yahoo Finance.
Despite this very real risk, the market and businesses seem to agree with what the Fed proposed on the day of the interest rate decision.
Major stock indices rose sharply on Wednesday following a 25 basis point Fed rate hike, the first since 2018.
Forecasts released by the Federal Open Market Committee, which makes policy, indicate the likelihood that the Fed will raise rates six more times this year. If this is done, rates will be 1.75% higher by the end of the year compared to the end of 2021, notes Yahoo Finance’s Brian Cheng.
The Federal Reserve announced the first interest rate hike since the start of the COVID-19 pandemic at the conclusion of its policy meeting. (Photo by SAUL LOEB/AFP) (Photo by SAUL LOEB/AFP via Getty Images)
“The March FOMC meeting raised rates for the first time in this cycle and set a somewhat more aggressive policy stance in nominal terms than either we or the consensus expected, although this year no more than the market has discounted. It is important to note that the policy response has been moderate. compared to the large shift in the Fed’s inflation forecasts, leaving the real rate path still unthreatening. This, combined with an upbeat growth outlook, is encouraging for a soft landing and fuels short-term risk,” said Evervcore ISI strategist Krishna Guhu.
As for Peterffy, he and his team are using this period of higher rates to continue innovating in products.
Interactive Brokers has just introduced a new mobile trading app called Global Trader. It has a simple and user-friendly user interface that makes it easy for novice investors to put money into work.
“It is designed for newcomers to the self-managed investor space. So these are people who may have been investing for many, many decades, but they are not very well versed in self-management tools, and so we needed to present them with a very, very simple interface,” explained Peterffy.
The story goes on
Brian Sozzi is the editor-in-chief and Lead at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and beyond LinkedIn.
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