Interest Rates

Okay – so the Fed is trying to move away from its Zero Interest Rate Policy. What’s happened since its December meeting when it announced this policy change?

– Short term money market rates have in fact increased – ever so slightly
– China’s stock market valuations have collapsed. They’ve gone from exorbitantly over-valued to only extremely over-valued.
– Oil has continued its apparent free-fall. The US still imports a lot of oil, but we also have exported at least a couple of tankers full. Iran is back in the oil exporting business – not much yet, but it’s coming. Locally gasoline is in the $1.30s. How can this be bad overall? Obviously not good if you own and oil well or provide services to the industry, but for the rests of the economy – isn’t this is a good thing?
– The US stock market had about as bad a start to the year as anyone could image. Fortunately as we closed out January, we have recovered some the of the losses from the beginning of the year.
– Japan’s central bank gave up on its ZIRP by moving to a NEGATIVE Interest rate policy just like the Euro-zone. Japan is still the third largest economy in the world, but it has been stuck in the doldrums for decades.

Here’s a potentially even more ironic twist to the Fed’s December policy decision. At the end of 2015, the 10 year US Treasury Note was yielding about 2.30%. At the end of January, the yield had DECLINED to about 1.90%.

What’s the story on that?

Bottom line we have a continuing level of uncertainty, both economic and political for investors to deal with. Now there is even a question about whether the FED will even follow thru with additional rate moves this year.