The market was “shocked” by today’s Fed Minutes which showed that the Fed is much more dovish than many think, that is, they aren’t raising rates any time soon. The hot topic of late has been all about how the Fed is going to transition from Tapering to tightening interest rates.
I have stated on several occasions that all of this talk about rate increases is way ahead of itself. The Fed still has an enormous amount of slack in the economy to play with. That is, they can afford to keep rates at 0% without having to worry about a big surge in inflation.
Speaking of inflation – remember earlier this year when so many people were predicting that this would be the year of “labor class negotiating power” and wage inflation? Well, that isn’t happening either because the labor class doesn’t have a leg to stand on against a capitalist class that has the upper hand in technological advancements and legal power.
Anyhow, I don’t think the interest rate increase discussion is even worth pondering until the New Year rolls around. And that might be a bit early. So maybe today’s equity market rally was a bit of much need change in direction in terms of the way some people are viewing the rate increases….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.