Interactive Brokers founder and billionaire Thomas Peterffy has spotted one likely unintended consequence of the Federal Reserve embarking on raising interest rates.
“There is a lot of leverage in the system as the Fed begins to raise rates. We will be looking at bankruptcies maybe among many of the private equity firms that are invested in on the high leverage, and in several businesses that basically will not be able to pay the interest,” Petterffy told Yahoo Finance.
Despite that very real risk, the market and businesses seem OK with what the Fed served up on interest rate decision day.
Major stock indexes rallied hard on Wednesday following the Fed’s 25 basis point rate hike, the first since 2018.
Projections released by the policy-setting Federal Open Market Committee signal the likelihood of the Fed raising rates up to six more times this year. If undertaken, rates would be 1.75% higher by year-end, compared to the end of 2021, notes Yahoo Finance’s Brian Cheung.
“The March FOMC meeting raised rates for the first time this cycle and set out a somewhat more aggressive path for policy in nominal terms than we or consensus expected, though not more this year than the market was discounting. Importantly, the policy response was moderate relative to a big shift in the Fed’s inflation outlook, leaving the real rate trajectory still unthreatening.That in combination with an upbeat take on growth raised hopes of a soft landing and is near-term risk friendly,” said Evervcore ISI strategist Krishna Guhu.
As for Peterffy, he and his team are using this period of higher rates to continue to innovate on the product front.
Interactive Brokers just unveiled a new mobile trading app dubbed Global Trader. It has a simple and slick user interface that makes it easy for first time investors to put cash to work.
“It is for beginners in the self-directed investor space. So these are people who may have been investing for many, many decades, but they are not really good in self-directed tools, and so we needed to introduce to them a very , very simple interface,” Peterffy explained.
brian sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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