The interest rate hike announced today by the Federal Reserve is a major milestone for retirees, who have been caught between a rock and hard place ever since the Great Recession, with zero interest rates and higher-than-average inflation.
The Fed’s quarter-point hike in the benchmark federal funds rate is the first in nearly a decade, and it could mark the start of something good for retirees, who rely on bonds, certificates of deposit and money market funds to generate income.
Rates on these instruments have been near zero – and often negative after inflation – throughout the post-recession era.
Low interest rates have gone hand-in-hand with low inflation. However, inflation is higher for seniors, due mainly to the disproportionate impact of ballooning healthcare costs.
Today’s move will not ease the pain. The higher short-term rate already has been priced into the bond market and is not expected to boost interest rates on products like money market funds or certificates of deposit. But if the rate hike is the first of several over the coming year, that could lift rates by some 100 basis points. And if longer-term bond rates move in lock step, seniors would get some relief.