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Investment Insights: How Should Investors View the Fed’s Recent Moves?

14 June 2018

By John P. Calamos, Sr. Founder, Chairman and Global CIO of Calamos Investments

Rising interest rates often cause investors to worry about the markets and their asset allocation strategies.  On June 13, the Federal Reserve raised short-term interest rates for the second time this year and signaled that more rate hikes are on the way in 2018.

What should investors make of these developments? It’s important to keep an eye on the big picture. I recently came across one of my blog posts from 2015 that discussed this very topic. In “Staying Level-Headed in the Face of Fed Uncertainty,” I noted that:

  1. Higher short-term rates should be viewed as an affirmation of U.S. economic health
  2. A more normal interest rate environment can support continued economic growth, particularly among smaller businesses.
  3. Historically, stocks perform well during periods of economic growth.

(You can read the full post here.

 

If we look at the big picture, the Fed’s comments should be less worrisome to investors. The U.S. economy continues to perform well.  Normalized economic conditions, pro-growth fiscal policy and deregulation are providing a wind in the sails for the U.S. economy. Small business optimism continues to rise, which bodes well for the future prospects of the U.S. economy. As I’ve often observed, small businesses are an important engine of the U.S. economy because of the jobs they create. The small business sector accounts for roughly half of the nation’s private workforce.

 My take: We are moving in the right direction.

 

Source: U.S. NFIB Business Optimism Index. The National Federation of Independent Business (NFIB) Small Business Optimism index is a composite of 10 seasonally adjusted components


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