Debt as a strategic tool: Wealth planning considerations in a rising rate environment

Increasing rates may be an opportunity for investors to reassess how debt, liquidity, and portfolio strategy work together to support long-term objectives.

Key takeaways

• The Federal Reserve raised rates by 25 basis points on September 16, 2026, bringing the federal funds target range to 3.75%-4.00%.
• The move may be as important for its inflation-fighting signal as for its direct economic impact.
• Strategic debt can still be an effective tool for financing appreciating or income-producing assets.
• Investors may wish to reassess existing variable-rate debt and evaluate fixed-rate alternatives where appropriate.
• Higher rates have improved income opportunities within fixed income markets.
• Emerging-market debt may offer diversification and relative-value opportunities for certain investors.
• Elevated rates can pressure equity valuations through higher discount rates and borrowing costs.
• Stress testing financial plans and maintaining flexibility are essential in a higher-for-longer rate environment.

For many investors, debt is often viewed as something to avoid. Yet for affluent families, business owners and sophisticated investors, debt can be an important financial tool when deployed strategically. The key is understanding when borrowing supports long-term wealth creation and when it introduces unnecessary risk.

That distinction becomes increasingly important following the recent Federal Reserve’s decision to raise the federal funds target range by 25 basis points to 3.75%-4.00%. The decision signals that inflation remains a concern and that policymakers may be willing to keep financial conditions restrictive if necessary.

According to Maya Brill, Senior Wealth Strategist at Regions Bank, and Trevor Skelley, Private Wealth Lending Advisor at Regions Bank, today’s environment requires a more deliberate approach to borrowing, investing and liquidity management. Their insights, combined with market observations from Alan McKnight, Chief Investment Officer at Regions Bank, offer a valuable framework for evaluating debt in a higher-for-longer interest-rate environment.

The Fed’s message matters as much as the rate increase

While the Fed’s quarter-point hike directly affects borrowing costs, its broader significance may lie in the message it sends.

McKnight notes that the latest move appears intended in part to reinforce the Federal Reserve’s commitment to restoring price stability. “A single rate increase is unlikely to materially change the inflation outlook on its own” he says. “Rather, the action communicates to investors and markets that policymakers remain focused on combating inflation and keeping expectations anchored.”

That signal can influence everything from market interest rates to borrowing decisions and investment valuations.

McKnight believes the economy has thus far remained resilient, noting that despite meaningfully higher rates than six months ago, unemployment remains relatively low and economic growth has remained constructive. However, McKnight cautions that risks could increase if market rates move substantially higher over the coming months, creating additional pressure on consumers, businesses and investors.

For wealthy families and business owners, this reinforces the importance of building flexibility into wealth plans and preparing for various future scenarios.

Not all debt is created equal

Debt itself is neither inherently good nor bad.

According to Skelley, debt can be particularly effective when used to finance appreciating or income-producing assets such as:

• Investment real estate
• Privately held businesses
• Strategic business expansion opportunities
• Short-term liquidity needs
• Wealth preservation strategies that avoid liquidating appreciated assets

In these situations, borrowing may allow investors to preserve long-term growth assets while still accessing capital as needed.

Conversely, debt used to finance depreciating assets or consumption without a clear repayment strategy becomes much more difficult to justify when interest rates are elevated.

“The focus should not simply be on the cost of borrowing, but on what that borrowing enables investors to accomplish,” says Skelley.

Why higher rates demand greater discipline

Brill notes that rising rates make debt more expensive and increase the need for careful financial analysis.

Before taking on new debt, investors should evaluate:

• Expected investment returns
• Cash flow projections
• Tax implications
• Repayment flexibility
• Fixed versus floating-rate structures
• Potential future rate scenarios

One of the most practical questions investors can ask is whether expected returns exceed borrowing costs by a sufficient margin.

“If financing costs exceed projected returns, debt can become a drag on wealth accumulation,” says Brill. “If expected returns substantially exceed borrowing costs, strategic leverage may still support long-term objectives.”

That analysis becomes even more critical in an environment where rates may remain elevated for an extended period.

Existing debt should be reassessed

The recent Fed action provides a natural opportunity to review existing borrowing arrangements.

According to Brill, borrowers may wish to evaluate whether it makes sense to:

• Refinance floating-rate obligations into fixed-rate structures
• Accelerate repayment of higher-cost debt
• Assess interest-rate hedging strategies
• Model debt-service requirements under additional rate increases

Business owners may have access to sophisticated tools such as interest-rate swaps, caps or collars that may help reduce exposure to future increases in borrowing costs.

Skelley notes that the current interest-rate environment has created situations where longer-term fixed-rate financing may be attractive relative to certain floating-rate structures. Investors and business owners carrying variable-rate debt should consider revisiting assumptions made when rates were considerably lower.

Debt can still help support wealth creation

Although higher borrowing costs have reduced some opportunities, they have not eliminated them.

Skelley shares that a significant wealth event, such as the sale of a business may create opportunity to invest the profits while simultaneously launching a new venture. Rather than liquidating investment assets to fund a new business prospect, consider leveraging existing assets and obtaining financing for startup and equipment costs.

“This strategy allows the individual to maintain an investment portfolio, potentially preserve income generation and pursue a business venture that ultimately added meaningful cash flow and value to the balance sheet,” notes Skelley.

While each individual’s circumstances differ, the hypothetical example illustrates an important principle: borrowing decisions should be evaluated within the context of an overall wealth plan rather than based solely on current interest-rate levels.

New investment opportunities

While rising rates can create challenges for borrowers, they may create opportunities for investors.

“Fixed income has returned as a meaningful source of yield after years of extraordinarily low rates,” notes Brill. “Investors who previously struggled to generate income from conservative allocations may now find attractive opportunities in bonds and other fixed-income strategies.”

However, she cautions against over-allocating to fixed income. “Historically, bonds alone have not consistently outpaced inflation over long periods. Maintaining exposure to equities, alternatives and other growth-oriented investments remains important for preserving purchasing power.”

McKnight also highlights opportunities in emerging-market debt, an area where his team continues to see attractive relative value and diversification benefits. “Compared with segments of the high-yield market where spreads remain compressed, emerging-market debt may present diversification opportunities for certain investors, although such investments generally involve additional risks.”

Higher rates present new challenges for equities

The impact of rising rates extends beyond debt and fixed income.

McKnight notes that higher rates can create valuation pressure on equities through multiple channels:

• Higher discount rates reduce the present value of future earnings.
• Borrowing costs increase for corporations.
• Capital investment may slow.
• Financing conditions become less accommodative.

“This does not necessarily imply a negative outlook for stocks,” he says. “But it underscores the importance of diversification and disciplined portfolio construction.”

Investors should recognize that debt management and investment management are increasingly interconnected. The same interest-rate environment that affects borrowing decisions also shapes portfolio returns and market opportunities.

The importance of preparation

Brill emphasizes the value of financial literacy and stress testing. “Investors should examine how their plans would respond to higher rates, lower returns, changing cash flows or unexpected economic developments.”

Skelley encourages the consideration of multiple outcomes rather than relying on a single forecast. “The future path of rates remains uncertain, and the ability to adapt may be more valuable than attempting to predict every market move.”

McKnight’s characterization of the current environment as a “precarious balance” between inflation control and economic growth reinforces the need for thoughtful planning. “Policymakers continue fighting inflation with a focus on avoiding unnecessary damage to economic activity, and investors should prepare for either outcome.”

In such an environment, debt should neither be feared nor embraced indiscriminately. Instead, it should be evaluated as one component of a broader wealth strategy designed to support long-term goals, preserve flexibility and capitalize on opportunities when they arise.

Economic and market forecasts are based on current conditions and assumptions, are subject to change and may not develop as anticipated. Actual results may differ materially.

Talk with your Regions Wealth Advisor about:

1. How the rising rate environment may create opportunity.
2. How you can prepare your portfolio and wealth plan for a changing environment.

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