![]() Why Do Investors Oppose Higher Interest Rates? Still, consumers - like investors - are less enthusiastic about the direction of the economy in the months ahead. Gallup's economic measures show a significant increase in consumer confidence in June, with many more consumers rating current economic conditions as good or excellent than did so in May. Significantly, these investor perceptions seem to parallel those of many consumers. Of course, this improvement in optimism is being tempered by all the investor worries discussed earlier - particularly investors' relatively new concerns about inflation and higher interest rates. It also reflects the much-improved job numbers of recent months and increased investor optimism about the stock market. The improvement in the Economic Dimension reflects, at least in part, the fact that two in three investors now recognize that the economy is in the midst of a recovery or an expansion. Investors have done well over the past year, and they are becoming more confident that they will continue to do so in the months ahead. The Personal Dimension of the Index shows that investors are increasingly optimistic about their own financial situations and their incomes over the next year. Sixty-nine percent of investors say the federal budget deficit is hurting the investment climate "a lot" or "a little." Investors express less concern about inflation (61%), the Israeli-Palestinian conflict (51%), and interest rates (36%). Three in four investors also say that the threat of more terrorist attacks, the outsourcing of jobs to foreign countries, and the issue of questionable accounting practices in business are hurting the investment climate "a lot" or "a little." Eighty percent say the situation in Iraq is hurting the current investment climate "a lot" (47%) or "a little" (33%). In June, the top concern of investors continues to be the price of energy (including gas and oil), with 90% saying it is hurting the current investment climate "a lot" (62%) or "a little" (28%). Still, investor optimism about the economic outlook remains well below where it was in December (41) and January (36). Investors are now more optimistic about economic growth, unemployment, and the stock market. The Economic Dimension increased 11 points in June to 25 - its highest level since February (30). In June, investors became more optimistic about their ability to achieve their investment targets and investment goals, and to maintain or increase their income. The Personal Dimension increased 13 points in June, reaching 70 - its highest level since January (72) and its second-highest level since March 2002. The Index peaked at 178 in January 2000 and reached its low of 5 in March 2003. While the Index is now significantly higher than it was a year ago (77), it remains below its December (104) and January (108) levels. The Index of Investor Optimism increased 24 points in June and now stands at 95, essentially matching its February (97) and November (93) levels. ![]() Even after its surge in June, investor/consumer optimism about the economy remains far below that of most economic forecasters. ![]() Market participants, business executives, and the Federal Open Market Committee - as it meets Tuesday and Wednesday to consider increasing interest rates - should keep this need for "perspective" in mind as they evaluate the economic outlook for the second half of this year. ![]() Even as the economic expansion has finally begun to create a significant number of new jobs, investor optimism has only returned to its February level and remains below where it was in December and January. The answer may be that we need to put the current level of investor optimism in proper perspective. So, why did June investor optimism reach its highest level in four months? And, why do nearly two in three investors oppose higher interest rates? investors are worried that inflation will hurt their investment portfolios. Even more significantly, nearly half of all U.S. PRINCETON, NJ - Six in 10 investors say inflation is a serious problem and 9 in 10 say the price of energy, including gas and oil, is hurting the investment climate, according to the June UBS/Gallup Index of Investor Optimism survey.
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