Short Term Rates (07/24/2015)
During this past month, the problems and difficulties of both Greece and China have been major news. At the June 17th meeting of the Federal Reserve Board (Fed), they were already discussing the issues of these two countries and how they might impact the U.S. economy. Apparently, from the released report, the likelihood of the Fed raising rates is still in play. The Fed doesn’t want to do anything that might cause a drop that might impact both the U.S.--which is one of the few growing economies in the world--and the rest of the world, but also believes that they need to raise short-term rates as the economy continues to grow. Their concern is that with low unemployment, wages will begin to move up and the risk of inflation will increase. The Fed is also looking for some leeway for future economic adjustments that would be provided by having higher short-term rates.
During the past several months, the anticipated higher Fed rates have been built into the pricing of bonds, stocks and real estate investments. The markets appear to have built in two rate hikes, one for the fall and one for early winter.
With all of the above, the 10-year Treasury interest rate has dropped over the past couple of weeks, in response to the stress in Greece and the desire for a safe haven for investments. In addition, the Euro has fallen to its lowest point in some time, as the worry of Greece leaving the EU creates fear of what might happen to the shared currency. Finally, gold, oil and many other commodities have dropped in value, as the remainder of the world appears to be growing at a very slow rate and not buying at the previous levels.
Once again, with all of our issues, the U.S. remains in a strong economic position. Thus far this year, this position has not been recognized in the markets, as stocks and bonds continue to trade at or below the levels at the beginning of the year.
Posted July 24, 2015 10:43 AM