Interest Rates ARE Rising. Here’s How to Deal.

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?


Don Montanaro

CEO, TradeKing Group

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