Markets stabilized on Monday and rallied on Tuesday as the Fed did what they have done now for roughly nine years … NOT raise interest rates. The Fed Funds target of 0-.25% remains where it has been since the fall of 2008, with market pundits – many of whom practically guaranteed a March increase, and then a June increase – now looking towards the inevitable September increase.
At The Bahnsen Group, we assign a 30% probability that the Fed raises a quarter of a point in September, much lower odds than consensus. In fact, we assign only a 60% chance that they raise at all this year.
The timing of the first quarter point hike, whether it be September, October, December, or 2016, is truly not that important. At whatever point the “gradual” increases commence, we believe the bigger impact will come if and when rates rise to the “sudden” phase of rate increases (to borrow the paradigm that Jeffrey Gundlach uses).
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