The inevitable has finally happened and Wall Street investors seem to be at ease for the moment. Today, Janet Yellen the Federal reserve Chair, raised interest rates for the first time in 9 years to 0.25% from 0%.
Stocks reacted positively to the news but not without many concerns. The top concern among investors and the Fed is the effect the interest rate hike will have on emerging markets. The Fed signaled they will be watching this very closely so they can keep our market stable.
Others areas are leaving investors a little concerned like the Junk Bond market. Could drying liquidity fears become increasingly amplified by the new interest rate hike?
As soon as the announcement was made, Wells Fargo followed by JP Morgan raised prime loan interest rates to 3.50% from 3.25%. Auto sales have been good with 0% interest rates and now future earnings for the auto industry are in question.
As for 2016, the Fed will most likely raise rates between 1 and 4 times, each likely being a 0.25%. Many are speculating already that the FED won’t make it past its first interest rate hike next year without causing more financial quagmires as a result.
So for today, stocks rallied, but we will have to give it a few days, if not weeks to see what type of effect, if any, the interest rate hike will actually have an effect on our economy as a whole.
As for the near future it looks like more market volatility ahead. Even though Janet spiked the proverbial football, it just doesn't feel right.
The truth is, she was forced to raise rates because of the Feds hesitation in September. Janet can think what she wants about the anemic strength of our economy. But lets ask ourselves?
If the economy is so good, why is the price of every commodity out there so terrible? If the economy is so good, why do junk bonds continue to fall? If the economy is so good, why is there recurring talks of a global recession.
The Fed will do whatever investors want till either it all comes crumbling down, or till the 2016 election is won by Democrats.
I think we can all see that the political powers are still at play.