A Message On The Federal Reserve’s Latest Interest Rate Hike
Michael Conway discusses the Federal Reserve’s decision to raise interest rates, the market’s new focus on Trump’s fiscal policy, and how investors should look ahead.
Speaker 1: Thanks in large part to central banking policy of near-zero interest rates, equity markets have had a pretty good ride since the bottom in 2009. The Dow, which sat at 6,600 eight years ago, has since exceeded 20,000. Today, after days of telegraphing a move based on optimism about the growth of the economy, the Federal Reserve raised interest rates by a quarter of a point, now at a target of 0.75 to 1%.
The rate remains near historical lows. That means savers still shouldn’t expect to start to earn anything substantial on money in the bank. In the last few years, the mere thought of a rate hike sent shock waves through equity markets. In other words, good news about the economy was bad news since it meant the Fed would raise rates. Investors expected a somewhat more aggressive plan for future hikes. We think the markets will now focus on fiscal rather than monetary policy. President Trump has promised to double the economy’s growth rate to 4% through policies like tax cuts, deregulation, and increased spending on things like infrastructure. Whether or not he can succeed in these areas obviously remains to be seen. In the meantime, investors should maintain a longterm perspective.