I’m writing this blog post just after the Fed decision not toraise interest rates this month. The final decision not to raise rates thismonth is, in my view, almost immaterial: this WILL happen sooner or later.After all, it’s a mathematical certainty: unless the Fed will start payingborrowers to take its money off their hands – and since almost no one reallybelieves that so-called “negative rates” will ever happen in this country -rates this close to 0% can only move one way, upward. So what’s an investor ortrader supposed to do about that reality?
I’ve seen many interesting takes on this issue, but here aresome of the best reads I found:
If you’re an economics wonk like me, you’ll like The Downside of Keeping InterestRates So Low for So Long by NPR contributor Marilyn Geewax. She lists several key reasons whyraising rates will ultimately help the economy, chief of which is simplyrighting the historically distorted situation of ultra-low lending costs we’vebeen living in for a good long while. To underline how long it’s been since thelast rate hike (June 2006), she points out that Twitter started in July 2006,just one month later. Wow, that feels like forever ago, doesn’t it?
CNNMoney’s Patrick Gillespie and Matt Egan concur in theirpost, It’s Time: The Fed Should HikeInterest Rates.Their argument boils down to “ripping off the band-aid”. As they point out,there will never be a “perfect” time to raise interest rates; economicvulnerabilities are always threatening in one form or another. But they make apersuasive case that now’s the right time and waiting holds considerable costs.
What about the contrarian view? Marketwatch columnist PaulBrandus draws some convincing parallels between the U.S. economy in 2015 and1937 in his post Like 1937, It’s a Bad Time to RaiseInterest Rates. Aswe all know, 1937’s rate hike did not go down well at all – it took the start ofWWII to lift the economic tide once again. I always respect a thoughtfulargument based in historical facts, so this was an illuminating counterpoint.
Where do you stand on the interest rate hike– and more importantly, how will you pivot your investing and trading strategyto address it?
CEO, TradeKing Group
Trading has inherent risk due tosystem response and access times that may vary due to market conditions, systemperformance, and other factors. An investor should understand these andadditional risks before trading.
Investments involve risk, losses mayexceed the principal invested, and the past performance of a security,industry, sector, market, or financial product does not guarantee futureresults or returns. TradeKing provides self-directed investors with discountbrokerage services, and does not make recommendations or offer investment,financial, legal or tax advice. You alone are responsible for evaluating themerits and risks associated with the use of TradeKing's systems, services orproducts. If you have additional questions regarding your taxes, please visit IRS.gov or consult a tax professional.TradeKing is unable to provide any tax advice.
TradeKing is not affiliated with,does not sponsor, is not sponsored by, does not endorse, and is not endorsed bythe companies mentioned above or any of their affiliated companies.
At the time of publication and in thepreceding month, TradeKing and/or Donato Montanaro did not have ownershipgreater than 1% in any stocks mentioned; did not have any other actual,material conflict of interest known at the time of publication; have notreceived compensation from a public offering nor from investment bankingservices related to any companies mentioned within the past 12 months, norexpect to receive any in the next 3 months; nor engaged in market making in thesecurities mentioned.