The U.S. Federal Reserve Bank (FED) has a rather unenviable record and an even more difficult job. Since WWII, they have raised interest rates 18 times.¹ As the chart below shows, the stock market and the economy have reacted badly each time. Does anyone really think that this time will be different?
In 1977 the FED was given a “mandate” from Congress with two distinct objectives: maximize employment, and keep long term interest rates “moderate” and prices “stable”. Given the cyclical nature of our economic system, preventing recessions from becoming depressions and economic expansions from becoming too hot (inflationary) is hard enough. The FED responds to extremes and tries to prevent extremes. Responding is one thing (i.e. their extraordinary actions after the 2007-2009 financial crisis), yet their anticipation most often leads to too much intervention (too many rate increases, too quickly). These actions are just policy mistakes.
Since rates bottomed in 2017, the FED has raised rates 7 times by 175 basis points.²
Source: Lance Roberts, The Coming Collision of Debt and Rates, As of 6/7/2018
In 2018 alone, more than 4 rate hikes are expected.³ Prepare yourselves. A bear market will show up eventually and we will have another recession. The only question is: “When?”
If you need help preparing, now is the time. Give us a call and let us show you what we can do to help.
Sources and Disclosures:
¹Roberts, Lance. “The Coming Collision Of Debt & Rates.” Real Investment Advice, 7 June 2018, realinvestmentadvice.com/the-coming-collision-of-debt-rates/
²Federal Funds Effective Rate and Target Rate, Thechartstore.com, As of 7/20/2018
³Ydstie, John. “Fed Raises Interest Rates, Signals 2 More Hikes This Year.” NPR, NPR, June 2018
Copyright © 2018 Beaumont Financial Partners, LLC DBA Beaumont Capital Management (BCM). All rights reserved.
This material is provided for informational purposes only. The views and opinions expressed throughout this presentation are those of our Portfolio Manager as of July 2018. The opinions and outlooks may change over time with changing market conditions or other relevant variables.
The information presented in this report is based on data obtained from third party sources. Although it is believed to be accurate, no representation or warranty is made as to its accuracy or completeness.
