On Thursday, the Fed will announce its latest policy decision. They’ll vote to either continue with the 0.0% – 0.25% Fed Funds Target Rate we’ve seen for the past several years or they’ll vote to raise it. This is almost the only thing the financial media is focusing on these days but we don’t think it will make much difference, if any, to a long-term investment plan.
The following commentary from First Trust Chief Economist Brian Wesbury succinctly summarizes the possible outcomes of the next few days. It’s a short but very worthwhile read. You can read it here: http://www.ftportfolios.com/Commentary/EconomicResearch/2015/9/14/the-fed-more-noise-than-meaning
The last time the Fed actually raised their Fed Funds Target Rate was on June 29th 2006 when they raised it from 5% to 5.25%. Since then, they’ve done nothing but cut rates. We’ve often said that the business of Wall Street is marketing, not investing, so it’s easy to see why there’s so much concern out there. They’re worried that this will be bad for business. We agree with Wesbury in the attached piece. The economy is on more stable footing and it’s time for us start getting back to a more normal economic environment. Janet Yellen has been clear in her assertions that any increase would be measured and small. We’re not looking at a 1% increase here. Most likely we would see .25%.
A rate hike might be accompanied by some volatility but it seems to us that the market is expecting an eventual increase so it could be a muted response. We do not see a need for dramatic portfolio reallocations at present. Like the Fed, we’ll be measured with any adjustments we make. As always, feel free to contact us with any questions you may have.
Jeff and Ken
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