By: Matt Garrott

By: Matt Garrott

Will the Federal Reserve Raise Interest Rates?


Will they raise them at the next meeting (June 16-17)?

No one knows for sure. I don’t know. The guy shouting on CNBC doesn’t know. That economist you don’t like who writes for that newspaper you don’t read doesn’t know. The Federal Reserve itself likely doesn’t know as they are waiting for every last scrap of data before making up their minds.
The (looming, impending, inevitable, other ominous descriptors) rate hike will continue to grow as a hot news topic and will have a huge impact on many people including economists, banks, and people who are paid to argue with each other about investing on television. Not on that list: long-term investors.

The Federal Reserve’s rate hike decision is more or less binary – raise rates by 0.25% or don’t. The outcome of that decision is not binary. It’s not as simple as stocks or bonds will go up or down. Perhaps there will be a short-term shock like the Taper Tantrum of 2013 followed by a reversion to the mean. Perhaps the reaction will be muted due to the increased communication from the Fed. Or maybe the bond market will melt down as bond liquidity dries up. Or maybe bond prices will soar for no other reason than nobody expects that. At least one gentleman with too much hair product will explain what should be happening after the decision and assert that his data is right, but the market’s reaction is wrong. Charts will be involved and possibly overlaid atop one another.

On the day that the Fed does decide to raise rates, doves will say they raised rates too soon. Hawks will say they waited too long. No one will say they got it right. ‘Perfect Timing by Federal Reserve’ will be the headline in exactly zero newspapers. Pundits will enthusiastically squabble over the news, but long-term investors should shrug their shoulders. While talking heads are reactionary, true investors are proactive, doing their due diligence in preparation of event risk rather than scrambling to catch up. The investor is focused several years in the future rather than the immediate past (where the media dwells).

Will the Federal Reserve raise interest rates? Yes, they will. No one knows when that will happen. No one knows how the market will react. All of that is outside of investors’ control, but they can control how they prepare their plans and how they react to the news.

Fairway Scorecard 5-31-2015