What if interest rates continue to rise? (2 of 2)

 

Even higher rates and your investment:

 

Some fear that rates could rise much further. What might that look like?

 

It’s important to keep in mind that the Federal Reserve is not incentivized to increase rates to levels that would have a crippling impact on the government or the economy.

 

The U.S. federal government carries substantial debt, and sky-high rates would result in it paying out substantially higher amounts via regular interest payments. According to this WSJ article, “if the average interest rate were to rise from 1.5% to 5% … the federal government’s interest bill would balloon from $400 billion to more than $1 trillion.”

 

Sky-high rates would also be devastating for the countless people who carry consumer debt. That is not a pain that the Federal Reserve is eager to inflict upon Americans.

 

Should bond rates follow climbing interest rates, you may come to believe that your capital would be better placed in bonds or elsewhere. In that case, you may request a return of capital. That process will be carried out according to the information in the “return of capital” FAQ in the first section of this FAQ page. We are typically able to return your funds within 1-3 business days.

 

In the unlikely case that bond rates were to rise above 10%, we would consider a temporary increase in the fund’s loan rates and preferred returns to match those of bonds.

 

Review this Forbes article for more information on the direction of interest rates. Just scroll down and find this section: “Mortgage Interest Rates Forecast for August 2022.” Although economic predictions can be tricky, leading experts expect rates to be in the range of 5-7% by the end of the year. That is compared to the current 5-6%.

 

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