Janet Yellen and the Fed finally raised the short term interest rate.  Headlines touted the “historic” nature of the move since the Fed has not raised its benchmark interest rate in seven years. While it’s true that the Fed has never held rates so low for so long, the seemingly endless speculation of “will they or won’t they” left the actual event feeling a bit anti-climactic.  Economists were quick to point out, too, that this initial rate hike is not nearly as important as the overall pace of rate subsequent hikes, how fast and how far, in determining its ultimate effects. The stock market took this mostly in stride.  The sense of relief on Wall Street was palpable.  Stocks rallied in the days leading up to the decision and surged again after the announcement, but don’t expect any more big moves from the market.  Since the lead up was so prolonged, stocks had already “priced in” the Fed’s announcement and there isn’t much more opportunity to be squeezed out of it.  Stocks have been unable to sustain any upward momentum all year and we expect that weakness to continue. As for bonds, when interest rates rise, prices fall.  The Fed’s policy has a more direct impact on short-term government debt because those yields are highly sensitive to changes in the fed-fund rate. But, just like with stocks, most of the adjustment in prices has happened already so if you are in short term debt securities you shouldn’t see much of a change.  The Fed’s impact on long-term bonds is more indirect. The value of those bonds are influenced by a broad basket of factors, including the global growth and inflation outlook, so here again we see little change in long-term bond prices unless the Fed quickens the pace of rate hikes. As for borrowing, there already is a large gap between the Fed rate and what most people pay on… | Read More »