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Is Perception or Reality Moving Markets?

September 19, 2016

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Today we ask; is the Fed really set to raise the range on the federal funds rate – the base rate for most market rates – soon?  

The more we scope the landscape, the less convinced we are that the Fed will raise rates.  From our Fed to the European Central Bank, to the Bank of England, to the Bank of Japan, no one has displayed nostalgia for the good-ole days; that is, nostalgia for the monetary and interest-rate policies that existed before the 2008-2009 recession.

Given the anemic growth outlook for most developed economies, central banks around the world are more likely to cut interest rates than to raise them. To wit, the Bank of England cut its official bank rate (the equivalent of our fed funds rate) to 0.25% from 0.50% only a few weeks ago. Back home, we don’t see a rate increase before December.

Of course, some futures traders would disagree, and as rates creep upwards, the question is, to lock or float? Here is our suggestion: Keep an eye on the stock market. If we see some big-drop days, like we saw last Tuesday, it might be worthwhile to float, because the odds of a Fed interest-rate increase will only drop.    

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