The Fed And Its Interest Rate Saga

Mar 15, 2016

For the past year, the Federal Reserve has given conflicting data regarding its intent to raise interest rates versus leaving them as is.  Last September, it appeared that a rate hike was almost certain.  In November, we expressed our views that rates should NOT be raised because of our concerns that data showing employment growth was misleading…the types of jobs being created were not ones upon which careers are built…but rather of a transitory nature. 

Given soft top line growth in most reporting companies, we believe the economic recovery was and still is on tentative ground and that fears of inflation are greatly exaggerated.   Indeed some believe we are actually in a recessionary period.

In mid-December, the Fed did finally pull the trigger and not only raised rates, but implied several more were to come in 2016.  From mid-December to mid-February, a massive sell-off occurred in the market, and volatility was excruciatingly elevated.

Recently, Fed Chief Janet Yellen’s tone has turned significantly more dovish. Because of much slower growth in China and the rest of the world, combined with a miniscule U.S. productivity growth of 0.5% for the past few years, we believe this dovish tone is more appropriate for current market conditions.

Disclosure:  None.