The Fed & The Replay Booth
The initial rally after the Fed announcement last week was quickly erased, as well the gains leading up to the decision. After investors thought about the Fed commentary, many worried that they are more focused upon events outside of the US and a still fragile US recovery. While we do not believe the US economy is rolling into a recession, the impact from a slowing China has yet to reverberate around the world. The Fed almost seemed to be looking for reasons NOT to increase rates, even though they have been warning they would be doing so “soon”.
The implication from introducing international events into their decision making process also makes it easier for the Fed to stand pat, providing them additional time to see if inflation can perk up. The fair question is whether there will EVER be a time that the Fed will raise rates? In a debt laden world, it will be hard to see how rates can increase much without hurting those heavily indebted entities/economies. It is expected to take a long time to get back to a “normal” global economic environment.
Bond investors were the big beneficiaries by the Fed keeping rates on hold. Interest rates should remain low through the end of the year and likely well into 2016. So, even buying bonds at the currently low rate environment should not hurt investors over the coming year or so.
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The opinions expressed are those of the author and are based upon information that is believed to be accurate and reliable, but are opinions and do not constitute a guarantee of present or future financial market conditions.