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The US Federal Reserve Is Almost “100% Certain” To Raise Rates: Here Is Warren Buffett’s Advice on How Investors Should React

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It seems like stock market participants are almost certain that the Federal Reserve, the US’s central bank, will raise interest rates there soon. According to Bloomberg’s World Interest Rate Probability (cited by this SGX report), investors are nearly at a 100% consensus for an interest rate hike in March.

For some brief history for context, the US Fed funds rate – the key interest rate that is controlled by the Federal Reserve – was kept at near-zero between 2008 and 2015. After that long wait, the first increase of 0.25% arrived on December 2015. This was followed by a similar increase in December 2016.

Since 2008, there have been plenty of discussions in the financial world regarding the matter of interest rate hikes from the Federal Reserve.

Poised for another hike

As stock markets are poised for another rate hike, investors may be wondering how they should be reacting to the Fed’s latest moves. For this, it’s worth looking back at what famed billionaire investor Warren Buffett said in 2015. When asked about interest rates, Buffett responded:

“If (Federal Reserve Chair) Janet Yellen came up and whispered in my ear what she was going to do for the next two years, it wouldn’t make any difference what we do.”

So, Buffet was pretty clear on what he would do about changes in interest rates – he wouldn’t change a thing about the way he invests even if he knew exactly what the Federal Reserve would do. For Buffett, his eyes are focused on finding the right companies, with the right people, at a sensible price.

It is not to say that the movement of interest rates will have no impact on all companies.

For companies with a high debt load, higher interest rates may put more strain on their financials. However, if that is the concern, then perhaps a better approach would be to focus on companies with little or no debt. The key thing here is to focus on the underlying business, and not on what the Federal Reserve would do to interest rates.

If a company is not able to withstand a mere 0.25% interest rate hike, investors may want to think hard about whether that company is worth owning in the first place.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.