Watch The Fed, But Don't Worry

9/26/2016


The Federal Open Market Committee's decision to hold short-term interest rates steady this month came as little surprise. Fed funds futures implied just an 18% chance of a rate hike at the September meeting, though at press time, futures prices had baked in a 59% chance of a rate hike by December.

Nobody really knows what will happen, but it's easy to draw a reasonable-sounding conclusion without hard evidence. Here just three:

• After August's weaker-than-expected hiring data, the Fed will need several strong employment reports before raising rates. Don't expect a rate hike until next year.

• The Fed won't raise rates in November for fear of interfering with elections; December is more likely. 

• Strength in the housing market and rising inflation suggest the economy may be overheating, so the Fed will probably raise rates in November.

Any one of the above arguments could be true. Of course, they could also all be wrong, which illustrates the danger of trying to predict what the Fed will do. Our advice: Own quality stocks, keep a portion of your equity portfolio in short-term reserves, and don't worry about the Fed.


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