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Fed Increases Short-Term Rates

Fed Increases Short-Term Rates

As expected, on Wednesday, June 14, 2017 the Federal Reserve raised its benchmark short-term interest rate by another 0.25%. Additionally, the Fed provided guidance that it expects to lift the short-term rate at least once more this year. None of this is a surprise.

You are likely going to see many stories about monetary policy getting tight and the potential threat that poses for the economy in general and the bull market in stocks in particular.

As usual, you should discount the conventional wisdom. What is really going on is the Fed is getting "less loose," not "tight" and there is ample room for the Fed to stay along this path without risking a recession or a bear market. The banking system is full of excess reserves from the Fed. Until the Fed eliminates those excess reserves or lifts the rates it pays banks on those reserves above the rates on loans, policy will remain loose.

What does this rate hike mean for your own personal investment portfolio, retirement, or future planning? Not much. Does this rate hike mean that you should change your investment portfolio or financial plan? Not in our opinion. The truth is that this rate hike was expected, priced into the market, and fully accounted for. The best thing to do after headlines such as this is to simply stay the course.  

If you have any questions, or would like to discuss in more detail, please contact your M. Griffith advisor.