What You Need to Know
- Rates could stay about the same.
- They could also fall, or go up.
- Fixed annuity stability could be comforting in all three scenarios, a distribution executive says.
Life insurers are making the case that a non-variable annuity can also help clients cope with aches and pains caused by a surprisingly good economy.
The Bureau of Labor Statistics startled investors today reported that hiring has been stronger than expected, the unemployment rate has fallen to 4.1% and hourly earnings are 4% higher than they were a year ago.
The Federal Reserve Board was preparing to lower interest rates fairly quickly. Now, its plans could change.
The S&P 500 was up about 0.5% in the early afternoon, but market analysts warned that more-expensive-than-expected credit could hold down stock prices.
No matter what the Fed and interest rates do, annuities “offer a safe haven for assets,” according to David Byrnes, chief distribution officer of Security Benefit.
A fixed annuity can help shield a client against the effects of a terrible economy, and it can also protect a client against the possibility of stable or slowly drifting interest rates hurting stock prices, Byrnes said.
What it means: If clients can keep assets in an annuity and the annuity performs as expected, the contract can insulate the clients against the effects of good news as well as the effects of bad news.
The backdrop: Federal Reserve Board officials believe that increasing interest rates helps control inflation.
The Fed began increasing rates sharply two years ago to cool prices.
Those increased have pushed rates on typical multi-year guaranteed annuities, or MYGA contracts, to more than 4% today, from less than 2% in 2021.
The Fed recently moved toward declaring victory in the fight against inflation. It’s started to push interest rates lower, to avoid accidentally freezing the housing market and the job market.
Falling interest rates can help increase stock prices, by lowering the cost of capital that businesses can use to grow and investors can use to invest.