Thought of the Day

28 September 2015

It seems as though the Fed is lining up those ducks in order to raise those rates by year end. Federal Reserve Chair Janet Yellen said she is ready to raise interest rates this year and intends to let the labour market run hot for a time to heal the lingering scars of the worst recession since the Great Depression.

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“Most of my colleagues and I anticipate that it will likely be appropriate to raise the target range for the federal funds rate sometime later this year,”  said madam chair as she delivered a speech last evening  in Amherst, Massachusetts.

So, when the FED raises those rates, what is going to happen? Will the bull market stumble, bond yields climb across the curve or merely flatten, and will the economy slide into a recession? It has been 74 months and counting whereas the competing record stands at 35 months.

Are we really ready for this hike? If not how do you ready yourself for a much anticipated move like this?

For bonds what I can say is that it has been pretty volatile as the market looks forward to the rate hike and looking very similar to what you see happening with equities.

The major difference is that the impact of the hike may happen faster in bonds than stocks when the Fed changes course in policy. Interestingly, in office talk our portfolio manager Osmond here at FSL thinks that markets have already adapted to Fed policy expectations and as such any hike is already priced in.

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