FOMC expected to raise rates through 2018!
This marks the third time that the Janet Yellen-led Federal Reserve has hiked rates. Plus, she and her fellow policymakers gave every indication that they’ll continue to raise rates two more times this year and perhaps even four times in 2018.
What’s more – just as I predicted in last week’s article — the mainstream media is making a big deal about the Fed’s decision to move rates higher with headlines like “Interest Rates Set to Skyrocket Over the Next 18 months – Get Ready Now”.
But it’s not going to happen!
In this article, I’ll explain why and how in detail specifically what you should be doing with your money to protect it and profit in the short run.
Sure, the Fed finally raised short-term interest rates after their long-telegraphed decision to do so. But guess what happened to the top-of-the-financial-food chain interest rate, the only rate that really matters, the yield on the 10-year U.S. Treasury?
It went down! Yes, the yield declined from 2.60% to 2.51%… admittedly that’s a decline of only nine basis points, but it’s still a decline. If you don’t know why the 10-year Treasury yield is so important, read my January 6 Money and Markets article where I lay it all out for you.
Click here to watch a video that explains how to use this loophole right away.
Of course not! Let’s do the math: Seven increases of .25% each would mean a cumulative increase of 1.75% (6 increases x .25%). Now add that to the post-Fed-decision level of .75% and you get a fed funds rate at the end of 2018 – that’s just 20 months away – of 2.5%. That’s where the 10-year rate is now!
Wall Street can do this math too, so the market is telling us, that – as I said – it’s not going to happen: intermediate and long term rates are not headed substantially higher. No way are six or seven more rate hikes on the way!
But you can be sure, Janet Yellen and her band of merry men at the Fed will continue to bluster and posture about moving rates higher because it’s the all-important step 5 of the current administration’s 9-step plan that I outlined in my March 3 Money and Markets article to keep the economy and financial markets bumping along.
|Expect Janet Yellen’s FOMC to raise rates through 2018.|
Specifically, she said the FOMC’s decision sends a “simple message” to consumers that the economy is “doing well.”
“We have confidence in the robustness of the economy and its resilience to shocks. It’s performed well over the last several years. We’ve created since the trough in employment after the financial crisis, around 16 million jobs. The unemployment rate has moved way down. And many more people feel optimistic about their prospects in the labor market. There’s job security.”
“We’re operating in an environment where the U.S. economy is performing well. And we seem pretty balanced. So, I think people can feel good about the economic outlook.”
Well, obviously, our Fed Chairman is ignoring the message that’s communicated in this chart from her very own St Louis division of the Federal Reserve.
And that’s despite the trillions of dollars the Fed and the other central banks in the developed world have thrown at the problem as shown in the chart below.
As I’ve previously pointed out, with the interest rate on the 10-year U.S. Treasury continuing to hover around 2.5%, a portfolio of carefully selected dividend paying growth stocks hedged with a sprinkling of gold and the long-term Treasury ETF TLT remains the best way forward given current conditions.
In his recent, market letter bond-king Bill Gross explains why and his comments are completely in line with my view.
Gross says: “Central banks, including the Fed, are attempting to walk a fine line – generating mild credit growth that matches nominal GDP growth – and keeping the cost of the credit at a yield that is not too high, nor too low, but just right. Janet Yellen is a modern day Goldilocks.”
“How is she doing? So far, so good, I suppose. While the recovery has been weak by historical standards, banks and corporations have recapitalized, job growth has been steady and importantly – at least to the Fed – markets are in record territory, suggesting happier days ahead.”
Economic tidal waves act just like tsunamis!According to the National Geographic, the enormous energy of a tsunami can lift giant boulders, flip vehicles and demolish houses. But from a financial standpoint, the K Wave will be even worse: Millions could lose their homes. Millions more could see their lifesavings wiped out in an instant. Businesses, large and small, could close their doors. Even the bare necessities of life — food, water, clothing — might become scarce. That’s why it’s so important that you get your free copy of my new report “STOCK MARKET TSUNAMI” right away, click here to download now!
“Today, central bank flexibility is not what it was back then. Yields globally are near zero and in many cases, negative. Continuing QE programs by central banks are approaching limits as they buy up more and more existing debt, threatening repo markets and the day to day functioning of financial commerce.”
Bill concludes – and I agree – by saying “In this environment, be more concerned about the return of your money than the return on your money.”