Will they… Won’t they … Should we care?

Imagine if you were a fly on the wall during the ongoing Fed meeting and you were trying to understand the discussions of the meeting in Washington, D.C. You would probably hear comments like, on one hand… “Economy is good..” and on the other hand “Economy is not good…” – hence the famous quote from Truman asking for a one armed economist!
 
There is enough feeding frenzy to take up newsprint/webpages which would keep people busy for next several years about what 10 people voting in a conference room are going to do by 2pm EST today.
 
The relevant question is… “Should YOU care?”… and our humble opinion is – Please DON’T!
 
Before getting all nerdy on you, please ask yourself… will you make any different investment, purchase, or credit decisions because rates are higher by 25-50bps? – “Unlikely… Right”? Minimal impact on decision making … and if the answer is “Yes”, its probably not worth investing in. By the way, it was a trick question… the Fed as you probably know only sets short term rates and banks/other financial institutions lend based on the ‘long term yield curve’… which is influenced by capital market participants’ expectations on inflation, GDP, etc.
 
Back to the capital markets, another question to mull over – have initial Fed rate hikes derailed bull markets in the past… they have NOT… in the history of initial Fed rate hikes, stocks have done fine. For example, from 2004 to 2006, the Fed hiked rates over 17 straight meetings, yet the bull market ran until 2007 (the reasons for the subsequent bear market, is a story for another day…hint: it was not related to rates). The fear of the rate hike is already baked into market expectations, and when the Fed does finally raise rates and investors realize the fear is a myth, the market will likely go higher.
 
So folks, no need to overthink this… don’t fret over the Fed moves… stay calm and carry on. The bull market of the last 6 years, in our opinion is, intact and thriving.