Fed Watching – A Follow-up

The comments below are a follow-up to our blog of September 1, 2015.

At the recent September meeting the Fed chose to not raise interest rates and provided guidance that might suggest that a rate increase may be a little further down the road than previously thought.

In remarks following the Fed meeting, Chairman Yellen indicated that inflation remained well below the Fed’s target rate of 2% and that unemployment data, while appearing to be strong at 5.1%, was not all that clear, due to low work force participation.

The Chairman also pointed out that uncertainty in China and other countries could spill over into the U.S. economy.  This, together with the potentially adverse affect of higher interest rates on an already stronger dollar, led to the decision to not raise interest rates at this time.

Listening to a variety of prognosticators prior to the Fed meeting could make one believe that the case for increasing interest rates was largely based on the length of time since the last increase.  The consensus among the rate increase contingent seemed to suggest that the Fed should raise rates in the September meeting and then indicate that this was a “one and done” action.  What we got was “none and done”.

Investors would be well advised to consider that no change means don’t change.  In other words, stick to your long term game plan and don’t attempt to “trade the Fed”.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®